“You idiot! Why would you run that play? You know it doesn’t work. Anyone could have told you that!”
It’s so easy to say you knew exactly what to do after the fact.
That is such hindsight bias. The problem is, hindsight bias also promotes this concept called the armchair quarterback syndrome. This is, as Adam Grant describes in his book, Think Again, “where confidence exceeds competence.” The idea behind the armchair quarterback is that this is someone who provides commentary to something that had nothing to do with them.
We all know that one person who screams at their favorite team on TV after every drive. Every unsuccessful play seems so obvious after the fact. Especially when we all watch it in slow motion.
As annoying as that is, I see the same thing in financial media. You might have seen headlines like this one, that say “here how much you would have if you bought (insert hot stock) 10 years ago.” – Ugh!
The biggest problem with these types of articles is that it gives the impression that stock picking is not only easy but a suitable, sustainable, strategy. Could we have known Tesla would be one of the highest-priced EV stocks on the market, that Cathie Wood’s innovative ETF would have its heyday once the pandemic fears ease?
But after a phenomenal year in the market, of all of 2021, only 3 hedge fund managers “beat the market.” – 3!
The S&P 500 has returned 29% this year. Only 3 hedge funds on this list have beaten this.
Thanks for playing! https://t.co/NHemqfSOkq
— Nick Maggiulli (@dollarsanddata) December 30, 2021
You don’t drive forward looking in the rearview mirror.
Any action 10 years ago seems so apparent. Back at the time, it just wasn’t. Risk and reward are woven with each other like the trunk of a money tree. But when faced with those risks, the right choice isn’t always the easy or apparent choice. If you think cryptocurrencies are all speculation today, 10 years ago, it was the equivalent of just putting your money in the garbage the day before the garbage man came.