Have you ever had a strong opinion (prediction) about investment markets which was subsequently proven to be incorrect? A recent example was when many people predicted borrowers would be forced to sell their properties due to the Covid lockdowns and the market would crash. This outcome now seems unlikely.
It is my view that a humble mindset is the best way to avoid being blindsided by unexpected investment risk, whilst at the same time spotting all opportunities. Let me explain.
Predicting the end of the world isn’t a risky endeavour
Robert Glazer wrote about the concept of cognitive dissonance in his recent
blog:
“… the authors examined the followers of cult leaders who predicted that the world was going to end on a specific date, and told everyone to prepare. When that day passed without a fiery inferno, you may have expected these cult leaders to have lost all credibility with their followers.
Instead, the exact opposite happened. The leaders simply declared their prediction was incorrect and declared a new date. Like clockwork, their followers doubled-down and began preparing for the next apocalypse.
Why would they do this? According to Tavris and Aronson, it was likely too painful for the cultists to admit they had fallen for a fraudulent prophecy. It was easier to avoid interrogating their own judgment, and to instead dig a deeper hole of delusion for themselves.”
This shows the danger of holding strong opinions and leaving no room for the possibility that you could be wrong, particularly when you are investing money.
Perpetual property bears seem to ignore the evidence
There are two prominent commentators that have been perpetually bearish about the Australian property market since I started ProSolution in 2002.
They are Martin North from
Digital Financial Analytics and economist Dr Steve Keen, who is now working in London. Of course, there are others but these two stand out in my mind.
They have both been outspoken and incorrectly predicted property price crashes on a number of occasions. In fact, I recall watching Dr Keen on the TV program, Sixty Minutes in 2008 telling all Australian’s
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