The Foresight of Hindsight Bias

SGH Wealth Management’s “Read What I’m Reading” May 2020 | May 8th, 2020

As Michigan once again hits the snooze button on re-opening, the last two months in the markets have been an interesting reminder of the humility needed to be a consistent investor. Its easy to get caught up in the media’s slanted view of what’s to come as everyone hates uncertainty but in the past two months:

·         March 2020 ranks as one of the 20 WORST months in market history.

·         April 2020 ranks as one of the 20 BEST months in market history.

It would have been easy to listen to all the negativity coming from the pundits and sell after seeing the downturn in March. Turns out, that would have cost one of the nicest one-month returns in market history.

By shifting one’s mindset to being comfortable in the unknown, you’ll be less vulnerable to reactive emotions, and destructive habits in investment decision making. This is a good reminder because moving forward, completely opposite outcomes seemingly have equal plausibility:

·         If we collapse into a years long depression, people will say “Of course we did, 20 million people lost their jobs, What’d you expect?”

·         If we quickly develop a vaccine, people will say “Of course we figured this out, every pharmaceutical company in the world was focused on defeating this one virus, What’d you expect?”

*Courtesy of Morgan Housel

Fortunately accepting uncertainty does not have to mean compromising returns through methods of simplification and lowering volatility. Complex problems don’t always require complex solutions and over an investment lifetime, the markets have consistently rewarded those that practice diversification and a focus on their own personal goals.

If you wanted to learn more about how we develop our trading strategies for these type of moments, please reach out to us at 248-731-0029 and check out further commentary in Sam G Huszczo, CFA, CFP’s interview on NPR Radio in the first link below: