"People only listen to what they want to hear" is a general statement with deep psychological implications.

If you consider psychology and investing, the two go hand in hand. Since they are closely related, you would know that one can change (or alter) the effect of the other.

One such psychological phenomenon is known as "confirmation bias."

Let's illustrate this phenomenon with an example:

When purchasing a mobile phone online, do you make an effort to check its reviews online? If so, congratulations, you are a smart buyer.

However, the point is different. Suppose you have been wanting to buy this phone for a long time and have finally managed to save up for it. Now, when you read the reviews, you will actually take into account every positive comment about the phone but will psychologically dismiss the negative ones. Sound familiar?

This concept is related to "confirmation bias."

Human minds and biases:

Due to the complexity of human thought, scientists have been able to deduce different phenomena related to subconscious human thinking. Confirmation bias is one of the results of such phenomena. Before we proceed, let's discuss what the term "bias" means?When an individual's thinking is anchored to a specific behavior, it subconsciously rejects evidence against it while confirming evidence that supports it. Although humans have been doing this all along, these behaviors can be extremely dangerous when it comes to investing.

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Investing and Confirmation Bias:

Psychologically, investors tend to gravitate towards information and knowledge they possess about certain types of investments. When considering the pros and cons of a particular investment, the buyer is likely to follow principles that they have long believed in.

For example: Investing in Bitcoin is dangerous and pointless.

If this is the investor's preconceived notion, then they are likely not to invest in Bitcoin in the future. Moreover, information that supports this notion will be accepted by the investor. On the other hand, information that contradicts this view will be rejected by the investor.

Most notably, this bias is not limited to investing but is prevalent in almost every field.

If you pay close attention, confirmation bias will limit you to considering only one perspective and force you to almost reject other viewpoints that could potentially influence investment decisions. In reality, to make good investment decisions, one needs to consider a proposal from multiple dimensions.

Failing to do so may lead to incorrect investment decisions and potentially significant losses in the future.

Confirmation Bias in the Stock Market:

Confirmation bias can be particularly evident in the stock market, where investors may selectively seek out and favor information that aligns with their existing beliefs about a stock's performance or potential, while ignoring or downplaying data that suggests otherwise. This can lead to overconfidence in one's investment choices and a failure to adequately diversify or reassess positions based on new information. It's crucial for investors to be aware of this cognitive bias and strive for objectivity in their decision-making process to mitigate its impact on their investment strategies.In the stock market, there are various situations where you can find confirmation bias affecting investors' investment decisions. Here are some examples:

When an investor comes across a "hot" stock on any financial website/magazine, he/she will conduct further research to prove that the so-called "potential" is real. They may see a plethora of positive news about the stock. At the same time, they will ignore red flags with the excuse that "it won't have a significant impact on the company."

If the company's stock price begins to decline, then investors will only start focusing on all the negative signals. Even if the setback is temporary and the company may have good long-term potential, investors still lean towards negative signals here, completely ignoring the positive factors associated with the stock.

How to avoid confirmation bias?

The simplest way to avoid confirmation bias when investing is to get expert advice from a trained financial advisor.

Do we always seek a second opinion from friends or colleagues for everything we do? Whether it's choosing an outfit for an important event or making significant life decisions, a second opinion actually helps us make decisions. So, wouldn't you want your second opinion to be completely impartial and reasonable? That's the purpose of expert advice.

Make sure you seek advice from experienced investors or professional financiers. Expert advice can give you a better understanding of alternatives.

However, with practice and experience, even individual investors can avoid confirmation bias without the help of a consultant. To avoid confirmation bias, you need to consider the following two important steps.

1. Examine every aspect: Considering only the advantages or disadvantages of an investment will result in incomplete information. Therefore, you need to view the scenario from different perspectives to make a well-rounded decision.

2. Take some time before making a decision: Time is an important factor that actually helps reveal various new pieces of information. A smart investor knows how much time he needs to finally make a decision.Conclusion:

Confirmation bias is not unfamiliar to the investment community, and you won't regret not knowing about this psychological phenomenon. However, now that you are aware that confirmation bias can adversely affect your investment decisions, it is necessary to avoid this situation.

Although confirmation bias is an instinctive human behavior, you can control/avoid this bias through practice and experience.