118 ShowMetheMoney
- Confirmation and resistance: skewing your interpretation of new
information to support earlier beliefs an dbeing slow to up date
those beliefs. - Vividness and pattern seeking: weighing dramatic information too
heavily an doverreacting to a series of similar sorts of news items
in the belief that they show a pattern.^11
Of these, the most potentially damaging cognitive biases are
overconfidence and superiority. As Buffett advises: “What counts for
most people in investing is not how much they know, but rather how
realistically they define what they don’t know. An investor needs to
do very few things right as long as he or she avoids big mistakes.”^12
There are three simple strategies to help investors avoi dthese
reasoning errors. The first is to recognize them. The secon dis to
insist on a justification, something you can do by writing a memo to
yourself about why you are making a decision. (Beware of the traps
of this strategy, which Buffett illustrates by quoting Ben Franklin:
“So convenient a thing it is to be a reasonable creature, since it
enables one to fin dor make a reason for everything one has a min d
to do.”^13 Many people do not have articulable reasons for many of
their decisions. In investing decisions, if you don’t have one, don’t
try to make one up.) The third, and related, strategy is to have clear
guidance in your decision making. For investing, this includes the
ideas discussed in this book.