The Oil Trade That Taught Me About Confirmation Bias
One of the most expensive lessons I learned as an investor came from a trade that initially appeared perfectly logical.
In 2014, I bought shares of GAS on the Vietnamese stock market.
At the time, oil prices had fallen significantly from around $80 per barrel.
My investment thesis seemed straightforward.
Oil was an essential commodity.
Demand would continue growing over the long term.
Eventually, prices would recover.
And if oil recovered, companies linked to the industry should benefit.
I was convinced I was right.
The market disagreed.
Observation
Looking back, the biggest mistake was not my thesis.
The biggest mistake was how I treated information.
After building a bullish view on oil, I began consuming research that supported my opinion.
I read articles discussing future supply shortages.
I read reports explaining why oil prices were unsustainably low.
I paid attention to analysts who expected a rebound.
Every new piece of supporting evidence strengthened my conviction.
What I did not realize was that I had stopped searching for information that challenged my view.
I was no longer conducting research.
I was seeking confirmation.
The Confirmation Bias Trap
Confirmation bias is one of the most dangerous psychological traps in investing.
Once we form an opinion, we naturally seek information that supports it.
At the same time, we tend to ignore, dismiss, or underestimate information that contradicts it.
The result is dangerous.
Our confidence increases.
But the quality of our decision does not.
In many cases, confidence rises faster than understanding.
That is exactly what happened to me.
The more bullish articles I read, the more convinced I became.
Unfortunately, markets do not reward conviction.
Markets reward being correct.
What Investing Taught Me
One question changed the way I make decisions.
Instead of asking:
Why am I right?
I started asking:
What would make me wrong?
This simple shift forces us to actively search for opposing evidence.
It encourages intellectual honesty.
More importantly, it improves decision quality.
Today, whenever I develop a strong investment thesis, I spend time looking for the strongest arguments against it.
If I cannot explain the opposing case, I probably do not understand the investment well enough.
Implication
Most investors believe their biggest risk comes from market volatility.
In my experience, a greater risk often comes from our own minds.
The market does not know what we believe.
The market does not care how many articles support our thesis.
The market only reflects reality.
That is why every investment thesis should include a simple question:
What evidence would convince me that I am wrong?
If we cannot answer that question, we may already be trapped by confirmation bias.
Final Thought
The lesson from my GAS investment was not about oil.
It was about decision making.
The goal of research is not to prove ourselves right.
The goal of research is to get closer to the truth.
Sometimes those are not the same thing.