Cognitive bias. Deviation from logic and reason that influence decision processes. Pure human nature.
Bias has the potential to affect every decision you take. Your interest in a sector. Your faith in a product. Your belief in a team.
Benjamin Graham once said, “The investor’s chief problem – even his worst enemy – is likely to be himself”. Bias is even more important to acknowledge as an investor. Mistakes directly impact returns.
3 things to look for to ensure you are conscious of your bias:
1. Are you consistently gathering information from the same sources?
We naturally pay more attention to information that supports our opinions. Perhaps you have convinced yourself that AI is the future. You might think blockchain is nothing but hype. Perhaps you are right. Do you think the information you absorb on a day-to-day basis might be swaying your investment decisions?
2. Are you over-reliant on data and neglecting human factors?
When you come from a quantitative background, data is at the forefront of many of your decisions. However, data alone cannot tell you everything. Sales revenue might be impressive. What does that tell you about the team’s strategic alignment? Or a founders’ penchant for ‘magpie-ing’? Overlooking human elements can leave you seeing one side of a very rational story.
3. Are you stuck in a cycle of using the same advisors?
Perhaps you have become accustomed to the same average CDD. It’s a familiar name. The quality must be up to standard as everyone chooses them. Does the work itself actually evidence this? Do the business returns justify the price? Do you believe that they are truly driving the 100-day plan? Don’t let bias affect performance.
Within the last few weeks, a client described us as “much better than the corporate drivel we normally get”.
Stop letting bias affect your decisions. Next time you’re about to double down on an AI platform, think. Next time you’re about to call your friends from your MBA class, think. Recognise the red flags. Consider the other options.
