Some of my early education was in science. I did not know it at the time but the art of science is to develop hypotheses, find evidence to support or disprove them, replicate them and eventually improve them. There is no finish line.
Somewhere in the past 50 years the methods have become fuzzier. Real scientists may behave the old way, but others, instead of using falsifiability as a guide, now look for confirmation. Psychologists are aware of the “Confirmation” bias. Little good comes from it.
Wikipedia says this about it:
Confirmation bias, also called confirmatory bias or myside bias, is the tendency to search for, interpret, favor, and recall information in a way that confirms one’s preexisting beliefs or hypotheses, while giving disproportionately less consideration to alternative possibilities.
All of us do it. It is about presenting facts that support our theory. It falls from the philosophical idea of truth. Something is true or it is not true. How many facts are required to support true before all other possibilities must, therefore, be not true.
Google is a useful resource in that almost any idea can be confirmed. For example, I searched the phrase, “evidence of aliens on earth” and found approximately 29,100 links. The phrase, “No evidence of aliens on earth” found 4. So, maybe you or I are alien beings. On the other hand, proving negative statements is impossible so “no evidence” really does not mean anything. Absence of evidence is not evidence of absence.
Investing should follow the path of falsifying instead of confirming. You will be forced to use common sense instead of edicts from analysts and internet hucksters.
Take a look at the short sale statistics and their reasoning. Look for your confirming ideas and then search for negatives. Over the years, Johnson & Johnson has been a wonderful security. Buy the stock is about twice as likely as a recommendation as sell the stock. Both sides will have some validity.
It requires skill and discipline to look for contrary evidence, but it is intellectually honest. Ideally you will find the stock you like is a good one because the ideas that deny that position are weak.
Sometimes a particular position is contextual. My friend sold all his Wells Fargo and he is a smart guy. There must be something terrible happening. On further examination we might find he is in the midst of a divorce, or is starting or expanding his business or needs the money to ransom his mother-in-law from kidnappers. Context always matters.
The rule of investing and life is that no single fact or opinion can define truth. Truth lies in the midst of the data chaos. It is never clear.
Look for meaning.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 866-285-7772