You Probably Need Help About Your Bull Market Denial

By | February 18, 2023

If that chart doesn’t convince you that the bull market has started, nothing will.

Some people refuse to believe. My Twitter feed this week has been filled with the anguish of bears who are slamming out multiple tweets that this is nothing but a great bull trap.

Ethereum is up “only” 43% this year. Bitfarms, my favourite public Bitcoin mining stock, is up 162% since January 1st.

So why the disbelief?

Blind-spot bias.

If you have never heard of blind-spot bias before, let me give a quick definition.

It’s a psychological irrationality where people are better at recognizing biased reasoning in others but are blind to bias in themselves.

More bad news: it affects smarter people more than dumb people. That is to say, “the smarter you are, the better you are at constructing a narrative that supports your beliefs, rationalizing and framing the data to fit your argument or point of view.”

That quote, by the way, is from the book “Thinking in Bets,” a must-read for any investors in the public markets today.

Blind spot bias is real and has been tested multiple times. It was first tested in 2012 by psychologists Richard West, Russell Meserve, and Keith Stanovich, and reported in the paper with the lovely title “Cognitive sophistication does not attenuate the bias blind spot.”

Everybody knows a guy who has this problem. The one at parties who spends all night building a beautiful narrative about how Trump is the savior of America (or the Antichrist) or how the Maple Leafs are going to win the Stanley Cup this year.

You may think the guy is dumb but he is actually quite smart. He (or she) builds a beautiful narrative. But their blind spots make them wrong more often than not.

Not being aware of blind-spot bias is a deadly sin in the world of investing if you are investing with your own money (like me).

If you have no skin in the game and you are just trying to pump up your view count on Twitter then there is no problem. Just make up whatever story you want. If people buy into it, that’s their problem.

If you are investing other people’s money (OPM), your job is only slightly harder. You just have to convince your customers that you are “playing it safe” and you are waiting for a pull or the “real” market rally to start.

Whatever story works for you, I guess.

But I don’t have that luxury. It’s a bull market so I’m in it, up to my neck.

What happens if the market starts to reverse itself?

That’s easy. I will just start selling.

When the facts change, I change my mind.

Do you?

Have a nice long weekend.