This could also be known as the “everyone else thinks your children are intolerable, while you think they are little angels” bias.

People tend to emphasize the positive attributes in things that they already own and discount the bad things. For example, I have an old car that developed a backfire so bad that flames were coming out of the exhaust. I somehow loved it even more afterwards, despite incurring an enormous towing bill to get it to a mechanic. I couldn’t even articulate why I loved it more, apart from a general appeal to “character”. My wife views this situation differently. And I have no doubt that if the car belonged to someone else, I would think it was a pile of garbage.

This bias is probably a necessary survival trait. In the overall scheme of things, it is probably better to be happy with what you have rather than always being regretful. It doesn’t seem likely that anyone could stay married if they kept comparing their spouse negatively to someone they used to go out with. Similarly, it is in the interests of the species for people to take care of their children. This is easier if they have an unrealistically good opinion of them. Most biases that seem silly are there for a reason. Evolution might be mindless, but it is also not stupid.

But evolution only cares about us having children. “Survival of the fittest” really means “survival of those able to have the most children”. Evolution doesn’t care about us being good investors. And suffering from choice supportive bias is very detrimental to investment decisions.

Imagine you bought a stock that went on to underperform the market. The bias would have you:

1. Refuse to acknowledge the reality. “The stock was a good choice. The rest of the market is in an unsustainable bubble”.
2. Rationalize the poor performance. “The stock has great value. It often takes time for value stocks to be appreciated.”
3. Exaggerate any positives. “I might have underperformed but I still made money which is all that matters in the long run.”

None of these behaviors will help. A sufferer will hold onto bad positions after all the evidence is pointing towards exiting being the correct decision. And this leads to people missing out on future opportunities because capital is tied up in the initial investment. The tendency to only see the positives is a mistake whose effects last long beyond the initial decision.

It is tempting to think that knowing about a bias is enough to make you avoid it. But this isn’t true. There is plenty of research that shows that knowledge of a cognitive problem isn’t enough to avoid, or even mitigate it. It is not easy to think your way out of bad thoughts.

The easiest way to help with this, and most other psychological biases, is to work with someone else. We all know how easy it is to see clearly when someone else is making a mistake. And how much fun it is to point it out. A mutual agreement to point out flaws is a very valuable resource.

The harder, but probably preferable, way to cope is to develop a process to literally think your way out of the bad thoughts. It isn’t easy, but it is possible. I will write about self-directed cognitive therapy some other time.

Disclaimer

This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith and any related legal, tax, accounting, or other material considerations. To the extent that the reader has any questions regarding the applicability of any specific issue discussed above to their specific portfolio or situation, prospective investors are encouraged to contact HTAA or consult with the professional advisor of their choosing.

Except where otherwise indicated, the information contained in this article is based on matters as they exist as of the date of preparation of such material and not as of the date of distribution of any future date. Recipients should not rely on this material in making any future investment decision.