Think Like the Great Investors: Make Better Decisions and Raise Your Investing to a New Level

Chapter 11

Reconstruction (hindsight)

Who among us has never struggled to solve one of life’s little puzzles? Like working out how to fix something when the method was not clear and the parts we needed were apparently not available. After many false starts and experiments we find a solution. Feeling pleased with ourselves, we describe the problem and our thinking process to our friend Neil, who says nothing until we finish our long and detailed explanation. When we announce our solution, Neil says, ‘That is obvious! I could have told you that’.

It is entirely possible that Neil did indeed really know the answer to our problem before we started talking, but it is more likely that he gradually came to a realisation of the solution as we recounted our story, and by the time we had finished he really believed that he knew the answer to the problem all along. It would be harsh to dismiss his response as dishonest because we are all prone to this cognitive bias, whether we realise it or not.

If, instead of relating to Neil our process for solving the problem, we had described the problem to him first and asked how he might solve it, it is likely that Neil would have been as puzzled as we were at that stage. However, once we told him everything we found out, Neil naturally imagined that he had known some of those things beforehand and therefore it was not such a tough puzzle after all. ...