• Invest
    Investment Suite
    Stocks
    Mutual Funds
    Future and Options
    IPO
    Exchange Traded Funds
    Commodity
    Stockcase (Stock Baskets)
    Currency
    Non Convertible Debentures
    Sovereign Gold Bond
    Exclusive
    NRI Account
    Private Client Group
    Features
    SipIt
    MTF
    Investment Suite
    Exclusive
    Features
  • Platform
    Product Suite
    Kotak Neo App & Web
    Nest Trading Terminal
    NEO Trade APIs
    Features and Tools
    MTF
    Securities Accepted as Collateral
    Margin Requirements
    Equity Screeners
    Payoff Analyzer
    Calculators
    SIP Calculator
    Lumpsum Calculator
    Brokerage Calculator
    Margin Calculator
    MTF Calculator
    SWP Calculator
    CAGR Calculator
    Simple Interest Calculator
    ELSS Calculator
    Step up SIP Calculator
    All Calculators
    Product Suite
    Features and Tools
    Calculators
  • Pricing
  • Research
    Research Calls
    Long Term calls
    Short Term calls
    Intraday calls
    Derivatives calls
    Pick of the week
    Top Monthly Picks
    Research Reports
    Fundamental Research Report
    Technical Research Report
    Derivative Research Report
    Research Calls
    Research Reports
  • Market
    Stocks
    Market Movers
    Large Cap
    Mid Cap
    Small Cap
    Indices
    Nifty 50
    Bank Nifty
    FinNifty
    Nifty Midcap India
    VIX
    All Indian Indices
    Mutual Funds
    SBI Mutual Funds
    HDFC Mutual Funds
    Axis Mutual Funds
    ICICI Prudential Mutual Funds
    Nippon India Mutual Funds
    All AMC's
    IPO
    Upcoming IPO
    Current IPO
    Closed IPO
    Recently Listed IPO
    Stocks
    Indices
    Mutual Funds
    IPO
  • Learn
    Resource
    Market Ready
    Kotak Insights
    Infographic
    Podcast
    Webinars
    Youtube Channel
    Quarterly Results
    Investing Guide
    Demat Account
    Trading Account
    Share Market
    Intraday Trading
    IPO
    Mutual Funds
    Commodities
    Currency
    Futures & Options
    Derivatives
    Margin Trading
    Events
    Budget 2024
    Muhurat Trading
    Share Market Holiday
    Market Outlook 2024
    Resource
    Investing Guide
    Events
  • Partner
    Business Associates
    Fund Expert
    Kotak Connect Plus
    Startup connect
  • Support
    FAQs
    Circulars
    Bulletins
    Contact Us
    Forms Download
    Get your Statement

Hindsight bias – You Knew It Already, Didn’t You?

  •  3m
  • 0
  • 09 May 2023

We always have some clever friends and relatives who claim to know everything beforehand. “See, I knew it all along!” But, do they really?

When it’s July for example. A Mumbaikar notices that it's beginning to look a little bit grey outside. He has a feeling that it's going to rain soon. But despite this, he has second thoughts. Weather can turn around any time. Because its Mumbai rains! When it actually does rain, he tells that he was sure it would when he saw the clouds rolling in earlier. This is the classic game of hindsight bias.

Market Geniuses in Retrospective

To many of us, things always seem more obvious and predictable after they have already happened. This bias tends to affect the future forecast of an individual, because he or she has not learned from their past mistakes. Having this bias can be destructive for an investor, as they sometimes tend to feel that they can predict the market very well.

There were many who thought they knew the 2008-09 crash was coming or all signs were there for the Harshad Mehta scam to happen. But can this kind of thinking harm you? The answer is YES.

Why Is It Dangerous?

Hindsight bias holds the danger of simplistic generalizations and investors tend to fall into its trap easily. Even if there’s enough data indicating that there are many IPOs that fail, the popular view is that IPOs are easy money. And when that IPO lists high, people start telling they knew it all along and how they discovered a gem of a stock. Now, this is not helpful for the investor who must make a choice about the next IPO based on the perception of their ability to predict past events.

The factors that lead a business to success are complex and requires thorough monitoring. If it were so easy to invest in bluechips and simply sit back, relax and see your money grow, then why some of yesterday’s bluechips are laggards of today? Or that some companies are too big to fail, yet they fail?

The same is true in the opposite scenario. Saying I knew it all along that the stock would plunge or something bad was about to happen. Investors who are prone to this bias might have an overestimation of their intelligence or overconfidence of their thoughts or decisions. This can lead them to take riskier decisions, which may harm their financial safety.

How to Avoid It?

In investing, hindsight bias may manifest as a sense of frustration or regret at not having acted in advance of an event that moves the market. Having hindsight isn’t bad. But one must know when exactly to use this tool. Remember no one can predict exactly what will happen from the start.

The key to managing hindsight bias involves documenting the decision-making process via a journal. Get a holistic perspective before you buy or sell any stock. Take into account various scenarios. Do your research well and stay updated on the stock you invest. That way your decisions will not be based on the past experience only.

References: Investopedia

Times of India

Did you enjoy this article?

0 people liked this article.

What could we have done to make this article better?

Read Full Article >
Enjoy Free Demat Account Opening
+91 -

personImage
Enjoy Free Demat Account Opening
+91 -