Excess Returns, Ep. 19. The Dangers of Hindsight Bias

Whenever we are confronted with a bear market, we all want to figure out how it will play out. We want to know how big the decline will be. We want to know when it will end. We want to know what stocks we should buy to limit losses during it and to outperform the market after it. To answer these questions, our minds tend to point us to the simplest solution we can find. That solution is often to find the bear market in history that was most comparable to this one, and to assume that what happened then will also happen now. But there is a major flaw in that argument: no two bear markets are alike.

In this week’s episode, we discuss:

– The dangers of trying to compare the current bear market to past declines, and;
– Compare and contrast some historical bear markets with what is going on now.

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