Recent headlines about Donald Trump’s proposed tariff changes have investors wondering what the potential impact on the markets might be. While tariffs and trade policy can certainly cause short-term shifts, there is no historical evidence that a U.S. president - Republican or Democrat, has a predictable, long-term impact on overall market returns. This isn’t to downplay the significance of policy changes; there will always be consequences. But there would be changes and consequences regardless of who is in office.
How this relates to investing is that it highlights behavioral issues, not purely factual ones. Let’s explore some of the common behavioral biases that all of us develop—biases that can shape our decisions, for better or worse.
Hindsight bias occurs when we look back at results or events and think, “I should have done this” or “I knew that was going to happen.” If something were truly obvious, most reasonable people would have acted on it. Looking in the rearview mirror makes things seem clearer than they were at the time, and I’m sure we’ll hear statements like, “I knew tariffs would hurt the market” or “I knew that stock was going to soar.”
Self-attribution bias happens when you invest in something that goes up and you take all the credit, “look how I got that right.” Many investors believe that with enough analysis, they can predict exactly what will happen, and when they’re right, it reinforces this belief. But when an investment goes down, the blame often shifts to someone or something else entirely.
Confirmation bias is when you surround yourself with voices that agree with your existing beliefs. If you believe dividend-paying stocks are the best investment and join a group or forum that shares that view, you’ll find plenty of validation, creating a very one-sided perspective.
Recency bias occurs when recent events feel like they will continue forever. If a stock has been climbing, investors may assume it will keep climbing, forgetting that past performance has no bearing on future results. This can lead to chasing returns instead of sticking to a sound strategy.
The point of exploring these biases is to help investors understand why they make certain decisions, even when, looking back, those choices may seem illogical.
If you have any questions about how these biases might affect your financial strategy, please reach out to our team.
