Outcome Bias

I want everyone to read this article by Joe Wiggins.

As an investing instructor for over 20 years, I’ve been uniquely positioned to witness the effect of outcome bias. In the middle of the dot-com bubble, I saw my Dad second mortgage his house to get money to trade. He was always asking me to tell him which stock is going to be the next Netscape. This is an extreme example, but it really happened, and it was a result of outcome bias. Don’t worry about my Dad nothing bad happened.

I believe this article makes a great case for probability analysis. Investor are always looking for an edge and they are loaded with stories as big as any fisherman, only investor’s stories are often verifiably true. Their stories are both good and bad. The best way to navigate the world of investing in my educated opinion is to use probability analysis and options. Probability analysis using options lets you position yourself for storybook endings while managing your risk and preventing catastrophic losses.

A quote from the article says it best. “A good decision cannot guarantee a good outcome. All real decisions are made under uncertainty. A decision is therefore a bet, and evaluating it as good or not must depend on the stake and the odds, not on the outcome” (Ward Edwards)

We’ve known this for a long time, and we can certainly help you evaluate your investing decisions using probability analysis. This is why ODDS (Options & Derivatives Decisions Support) is our name.



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