PSA: Do you beat yourself up after missing ‘obvious’ opportunities like Nvidia and AI? It’s not just you, and it’s called Hindsight Bias.

Before I knew about this psychological bias, I (and many others I know) thought we just had trouble 'biting the bullet' and investing in solid ideas. Thoughts like “it was in front of me all along, but for some reason, I was too scared to put money into it” were common. But the fact of the matter is, there are thousands of 'ideas' at any given moment, and the ones that actually make the news and become multi-baggers were not obvious in the past. So why do people feel this way, that they keep 'missing' out on obviously great investments? This is what is known as Hindsight Bias.

Hindsight bias is, according to Investopedia, “a psychological phenomenon that allows people to convince themselves after an event that they accurately predicted it before it happened. This can lead people to conclude that they can accurately predict other events. Hindsight bias is studied in behavioral economics because it is a common failing of individual investors.”

Why is knowing about hindsight bias significant? One, because if you believe that you did have proper insight and analytical skills to spot future success stories, then you might chase after any idea that looks good to to you now. However, unless you actually have proof that you were able to consistency find good ideas in that past that you simply didn't capitalize on, then you should not trust just your memory. Otherwise, one would pick potentially bad investments, and then think that they knew about other better ideas, repeating the cycle.

It's also important to recognize this bias just for your state of mind. Enough people feel bad enough about missing multi-baggers like Amazon when they should be giving themselves a break. Saying you could have made made 100k if you only invested in some stock years ago is not the same as losing 100k, or we'd all be in the hole. So don't fret about the past and keep looking to the future. There are still plenty of opportunities out there, so best of luck investing!

Tldr: Whatever happened in the past was not obvious, no matter how much it feels like it. Don't be overconfident that you can catch future ones but don't beat yourself up over missing opportunities either. Focus on the future!