![]() This is because there is seldom any pattern or predictability in past events except when we look at them from the lens of the future. Expecting something to happen again just because it happened in the past is a lousy reason to make an investment decision. It is important for investors to understand that while talking about investments, hindsight is almost never perfect. Hence, even if an investor found a company that has an identical financial and business value proposition that Apple had two decades ago, the odds are that the company would still not grow to become Apple. However, as mentioned above, the outcomes are not predictable. ![]() Then, they try to extrapolate the same patterns and apply them in the present or future events. The problem is that investors with hindsight bias notice patterns in past events. The rise of Apple was not predictable at all, and it was quite possible that Apple would not have grown into the company that it has become today but would have instead gone bankrupt. For instance, many investors today look at Apple stock and believe that it was an obvious choice two decades ago! However, that is not the case. The basic meaning of this bias is that people with hindsight bias look at events that have occurred and believe that it was very easy to predict the course of these events when, in reality, it was not. The crux of hindsight bias is often caught in sayings such as hindsight is always 20/20 . This is the reason that we will have a closer look at what this bias means and how it affects investor decisions in this article. Over the years, the effect of hindsight bias on the value of investor portfolios has been significant. ![]() ![]() One such bias is called the hindsight bias. There are several cognitive biases that affect our ability to think clearly about financial investments. ![]()
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