You Were Wrong Buying SPX at 777

You were wrong as you watched it slide to 666 in early 2009. But wait, the market has since rendered its verdict, and now you know you were right.

How could you be both right and wrong about one decision you made in the past? Your mind tricked you. You most likely attached too much importance to what was happening then. You let the market, which at the time was composed mostly of people going apeshit, lead you into drawing a hasty conclusion.

Humans have a tendency to attach too much importance to recent events. This cognitive dissonance is known as the fallacy of vividness.

People going apeshit are lambs. They sell low, they buy high, and they compound their assets into negative returns.

Do you hear the lambs approaching?

Michael Bigger. Follow me on Twitter and StockTwits.

P.S. Check out my new book How Traders Achieve Creative Flow.

Renita T. Kalhorn, who contributed the bonus work to the book, sent me the following comment this weekend:

Hi Michael,

I read your book again over the weekend and felt like I was reading it for the first time! It truly is chockfull of profound and practical insights. I hope you will send it to Seth Godin — I’m sure he would be interested in learning how you’ve applied some of his ideas.

I also think your diagram of the creative ecosystem is very powerful/useful, and something that traders should keep in front of them at work. You could have someone flesh it out artistically, kind of like a mind map, and even make it a separate download, like behavior gap does with his drawings.