I knew it all along

Aug 21, 2020

I called it!

It was so obvious.

By the time we were a few weeks into this pandemic, it was clear that video calling would become a large part of our lives.

I told all my friends they should buy Zoom Stock at $113 per share in April.  I did not purchase any shares, although I was certain it would increase significantly in value.

It trades today at about $290 per share.  A 157% increase.

There is an interesting study where participants are asked to listen to a clear “one sentence” audio.  They then distort the audio electronically for the same sentence and ask the same participants to listen and whether they can still “decipher” the sentence.  Over 60% of the participants said it was still audible.

Separately another group was asked to decipher the sentence but this time only the distorted version.  Not one participant was able to restate the sentence correctly.

Why does this take place?

The participants who were familiar with audio clip ahead of time, once they knew what to expect, could easily hear the words in the garbled version. In hindsight, it seemed the muffled clip wasn’t so hard to decipher.

Unfortunately, many of us err in the way we think about past events. We see things as inevitable when it was anything but.

Have you ever been in a game or watched a game that is very close in score with  just a few seconds on the clock the coach makes a call for a “play” to win?

If the play goes well and you ask the players whether the coach made a good call, most emphatically respond with a “yes”.

If in a basketball game, the “3 pointer” in that last second does not happen and the game is lost, then the viewpoint is that the coach did not make a good call at all.

Its much harder to predict the exact things that seem obvious in hindsight.

When we say “I knew it all along” we are stating this after the outcome that we are certain was going to happen. The reality is that there are so many factors at the time the decision was made that we forget about them and focus only on the outcome.

This bias is common because it helps us make sense of the world but it creeps into how we perceive past events in so many aspects of our lives.

We tell ourselves these stories that it was obvious when we lose money on an investment, or fail to obtain a job, a new client or success in a relationship.

The key to avoiding this bias is to not strictly review the outcome but think about how it occurred and understand that what seems simple in retrospect most likely had a multitude of different factors.

Another way to mitigate this is by thinking about different outcomes.  When you think about alternative realities it will help you feel less confident that “you knew it all along”.  Another good idea is to keep notes.  In my case, I could have written down my prediction on Zoom Stock and over time assess my true ability to make decent forecasts.

The next time you find yourself dealing with coworkers or friends who are regularly clever after the fact, you might find that waiting to announce the outcome of some decision until after they’ve given their own estimate or prediction!

Have a great weekend, Karl

Karl Choltus

Deep thinking Canadian sharing thoughts created in the shower.