If you have ever looked back at a trade and thought, “I should have seen that coming,” or found yourself clinging to your first opinion even when new facts arrive, congratulations, you are human. This week, we are diving into the hidden mental shortcuts that impact how you buy, sell, hold, and react in the markets.
These are not personality flaws, they are built-in cognitive patterns your brain uses to save time and energy. In daily life they are helpful. In investing, they can quietly sabotage your results.
Today, we unpack three big “Cognitive Errors”, Anchoring, Confirmation Bias, and Hindsight Bias, what they are, how they creep into your decisions, and the simple habits you can use to avoid them.
What is Anchoring Bias, and why does it mess with my market judgement?
Anchoring happens when your brain latches onto the first number, price, or idea it sees, and then refuses to let go. In investing, this often shows up when you anchor to a share’s previous high, your original entry price, or an analyst’s early forecast. Once that anchor is set, your expectations get pulled toward it, even if the underlying fundamentals have completely changed.
For example, if you bought a share at R120, you might find yourself thinking, “I will sell when it gets back to R120,” even if the company has deteriorated and R120 is no longer realistic or relevant. The anchor becomes the goal, not the data.
Anchoring affects your decisions by distorting your sense of value. Instead of asking, “What is this investment worth today?” your brain defaults to “What number did I see first?” That can lead to holding losers too long, overpaying for favourites, or dismissing good opportunities because the price does not fit your internal reference point.
How to break it:
Start fresh each time. Before making a decision, pretend you are analysing the investment for the first time, with no memory of past prices. Write down the current drivers of value, not the historic ones. And when you catch yourself thinking, “It should go back to…” that is your anchor talking.
What exactly is Confirmation Bias, and how does it trap investors?
Confirmation Bias is your brain’s tendency to seek out information that supports your existing beliefs, and ignore anything that challenges them. In markets, this can be dangerous because every share, sector, and macro theme has both bullish and bearish evidence. If you only listen to one side, you paint an incomplete picture.
Say you are convinced a certain bank share is a winner. You will naturally click on positive articles, listen more closely to analysts who agree with you, and dismiss red flags as “noise.” The result? You feel more confident, but not necessarily more correct.
This bias is sneaky because it feels like research. You are reading, analysing, paying attention, but the information flow is one-directional. It reinforces your conviction instead of testing it.
How to fight it:
Make it a habit to actively search for the opposite viewpoint. If you are bullish, look for bearish arguments. If you think a company is undervalued, find someone who disagrees and ask why. A balanced information diet leads to better judgement, and fewer “I did not see that coming” moments.
Why do investors fall for Hindsight Bias, and what is the real risk?
Hindsight Bias is your brain rewriting history to make past events seem more predictable than they really were. After a market move, it shows up as, “I knew that would happen,” or “It was obvious the rand would weaken.” The problem? It was not obvious, not at the time.
This bias tricks you into believing you have more predictive ability than you actually do. That false confidence can lead to bigger position sizes, unnecessary risks, and overestimating your own skill in reading the market. Hindsight makes luck look like insight, and that can be expensive.
It also makes learning from mistakes harder. If your brain rewrites the story to “I knew it,” then it never asks the more important questions, What did I miss? What could I have done differently? What information would have changed my decision?
How to avoid it:
Document your decisions before you take action. A quick investment journal, even three bullet points, keeps you honest. When you look back later, you will see what you actually thought, not what you wish you had thought. This transforms every trade into a learning opportunity instead of a memory game.
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