Think Without “Hindsight Bias”

When you plan something, especially in the case of building wealth, you need to have foresight. You ask questions such as “Should I invest in a particular property, stock, or business?”, “Should I hire someone to help me?” and the like. Before you make a decision,  you would have to take into account a lot of factors to lessen the chances of failure. 

However, there comes a point where you can grow paranoid or develop a paralyzing fear of committing mistakes that eventually hinders you from taking any risks necessary to build wealth. This is what we call “hindsight bias.” It is when people think they already know the outcome of an event before it even happens. A common phrase that people who have this trait is “I knew it.” But if they had really known it, they could’ve made a fortune out of it. When you think you “know” how a particular decision will go, you are actually just thinking of the worst case scenario and nothing else. In this case, genuinely “knowing” the outcome of a decision means that you would have -- or should have -- known what the right thing to do is. Instead, what actually happens is that you remain stagnant where you are currently standing and think “This is better than risking a major failure.” In the end, nothing happens and in the case of building wealth, nothing translates to demotion among other things. You have to keep moving forward and thinking without “hindsight bias” is what will fuel you to do so. 

By sticking to your game plan and solid fundamentals, you will be able to stop yourself from freezing in fear of the failure that you’ve just imagined in your head. In my instance, we built most of our wealth investing in real estate. We strictly follow the fundamentals outlined here and never try to time the market: buying value, maintaining a margin of safety, buying only where you know the market, and investing only if you have cash flow to cover the mortgage. Follow these and over time, making money won’t be an issue regardless of the market’s movements.

Matt King