NEW YORK (Fabian Capital Management) -- Everyone has core beliefs that make up who they are. Whether these views have been established by life experiences or are embedded in our psychology since birth, they color the way we see the world.
These core beliefs can also lead to an extreme bias that is hard to break. People get set on one idea or outcome that they ignore any evidence or data that flies in the face of their preconceived notions. Investors, like any other group, are just as guilty of these embedded expectations that can be dangerous to your wealth.
Frantz Fanon described this phenomenon best:
Sometimes people hold a core belief that is very strong. When they are presented with evidence that works against that belief, the new evidence cannot be accepted. It would create a feeling that is extremely uncomfortable, called cognitive dissonance. And because it is so important to protect the core belief, they will rationalize, ignore and even deny anything that doesn't fit in with the core belief.I often speak with investors that are so dead-set on an expected result from the market that they are unable to see any other outcome. They have rationalized their political, macro-economic, or market timing mentality into a state of conviction that is nearly unbreakable This often times leads to taking contradictory positions in stocks, bonds, or commodities with the expectation that the top is in or the market is due to turn. While this thesis might be sound on the surface, the results over the last several years speak for themselves. Another outcome from cognitive dissonance is paralysis by analysis. Too many conflicting opinions creates indecision that leads to inaction. Staying in cash for an extended period of time will not allow you to reach your investment goals and will create further anxiety if trends continue to favor wealth creation. Every dip in the SPDR S&P 500 ETF (SPY) since 2011 has been a buying opportunity rather than an opportunity to short the market. All you have to do is look at a price chart to realize that the trend is still intact and we are continuing to show positive catalysts for higher prices. There most certainly will come a time when volatility rears its ugly head and we return to another bear market cycle.However, that theme has yet to materialize, which is why betting against the bullish trend has been so fruitless.