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He who knows only his own side of the case knows little. His reasons may be good, and no one may have been able to refute them. But if he is equally unable to refute the reasons on the opposite side, if he does not so much as know what they are, he has no ground for preferring either opinion.”
John Stuart Mill, British philosopher from his classic On Liberty, 1859
What John Stuart Mill describes here is a logical fallacy that is referred to as confirmation bias in behavioral finance, and as special pleading by logicians. Simply put, this “condition” is a “one-sided fallacy” in which only supporting reasons for a thesis are presented, while opposing rationales are omitted. One-sided arguments are often used to persuade an audience toward a particular point of view – to “sell” an opinion, rather than providing both sides of the argument and thus enabling the audience to make an informed decision to “buy.”
The current tenor of political debate has been all about amplifying one-sided arguments as each party attempts to sell their view to voters. The same polarization has become evident in approaches to investment, and market bears these days are exhibiting all the classic symptoms of confirmation bias. Traumatic memories of the financial market meltdown and the ongoing economic uncertainty since have created conditions ideal for selling one-sided opinions. Committed market bears have ratcheted up their rhetoric to resonate with negative headlines warning of a double-dip recession or stock market decline. The financial media happily facilitates such opinion “selling” because it provides lively and sharp debate – high on entertainment value, but questionable on providing balanced perspective.
But we know better than to let these slanted arguments sway our market convictions. As I will explain, there are plenty of reasons to remain invested in equities.
Is the investor being “sold”?
Just because an argument is one-sided does not necessarily mean that the point-of-view being advanced is wrong, but it is almost always incomplete. Today’s headlines are obsessed with doomsday predictions. All we hear about is the economy falling back to near-recessionary conditions, unemployment remaining high, and the U.S. housing market continuing to be weak.
