As mentioned in the article below, confirmation bias is defined as “the tendency to process information by looking for or interpreting data consistent with what you already believe.”
Try this exercise:
The Presidential candidate named _________________ is bad because_______________________, and if they get re-elected/elected ________________ will happen…. which will make the market go down. Pretty easy right?
Confirmation bias can create blind spots around other events that could occur. We all have a tendency to get caught up in whatever we feel is the “primary event.” For many people, that event would be that “bad candidate” gets re-elected/elected and causes “_______________” to happen. This blinds us to the other possibilities such as coronavirus vaccine discovery, government stimulus, etc. etc. etc.
While it is entirely possible that the scenario you envision could play out, other things just happen. My advice as it applies to your investments is to be aware of confirmation bias during what will be an emotionally-charged election season. The key is to have a long-term investment strategy, and sometimes, you just need to see how things play out. After all, did you predict in late- March that the Dow would be above 29,000 for a bit in September? Probably not.
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