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On Confirmation Bias and Sunk Cost

Somehow I get the feeling that in active investing sunk cost fallacy, confirmation bias run rather rampant.

Confirmation Bias

We look for views but filters out to listen to the folks who agrees with our thesis. And it gets more comforting that our views are the general consensus.

The probable way to guard against this is to listen to fresh views or the alternative thesis, much akin to people telling you off. They might provide some counterbalance to a richly beautiful thesis.

Spend more time exploring the what if scenarios to test your investment in it. A good prospect will stand up against that.

The good thing is one that isn’t really rock solid will show more holes over time.

Sunk Cost Fallacy

Margin of safety is not about you buying something low enough that you haven’t lose money yet, but the value of what an asset, business, to the best of your evaluation, is actually worth.

It means either a back of the envelope estimate, or even a deeper evaluation.

And it always is moving from this point forward.

We can’t turn back the clock saying hey we should have bought this when its that cheap, or that we shouldn’t buy that investment at all because its just bad.

You prospect a stock now going forward, whether its worth while to invest, if its not, what price will make a good price, not an old reference.

Yellow Pages, Sing Post and SPH are totally different businesses at different points in time, and you invest in them with different bits of information.

You may also be lured into the mentality that you got it cheap, have safety, and didn’t evaluate whether the best investment out there is actually one you already own. And you end up searching high and low for something when you have something better.

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