Resist Confirmation Bias
July 5, 2025
The S&P 500 finished the first half of 2025 up just 5%, NASDAQ the same, the Dow a little less…the Russell 2000 saw a modest decline. On average, equity markets have risen 9-10% annually so 5% for half a year seems right in line…and yet, it was hardly slow steady progress to that gain. After rising slightly at the start of the year, the equity markets began drifting steadily lower and then plunged in reaction to Trump’s ‘liberation day’ proclamation of much higher than expected tariffs. Down 20% in just a few months. Then surprisingly recovering completely as the TACO (Trump Always Chickens Out on the draconian tariff proposals) notion spread, eventually rising over 30% from its early April low. A gradual 5% increase? Hardly. It was nervewracking for all, even the professionals.
Tolerating some volatility is part of the bargain for being an equity investor. More recently, however, that volatility is often immediate and more pronounced. We are used to the widespread, almost instantaneous awareness of breaking news. It is no longer considered extraordinary yet its impact on the movement of investment markets cannot be understated. That is especially worth remembering with the tremendously uncertain environment that confronts us and the markets now. The domestic policy upheaval engineered by the Trump administration, abetted by its allies in the Supreme Court that have endorsed the great expansion of the power of the executive branch of the government, will have meaningful, and not totally predictable, outcomes. Layer on that all the geopolitical turmoil and the continued existence of dramatic moves seem likely. Stay calm, steady, and be prepared to handle the volatility.
With changes in tax laws, tariffs, immigration, energy policy, and plenty of geopolitical tumult, one can easily find analysts worried about the deficit, stagflation, inflation, the potentially troubling impact on employment of both artificial intelligence (AI) and the crackdown on immigration and undocumented immigrants. And one can just as easily find analysts stoked by the additional tax relief, the pro-business features of the tax bill that they expect will stoke economic growth, the pro fossil fuel energy policies, the boom that will result in corporate earnings from AI, the opening up of international markets as a result of tariff driven trade deals.
Who are you going to listen to? …what are you going to read? As an active investor, or as someone with an advisor taking care of your money, the danger is in the tendency, very common among all humans, to seek out, and favor, confirmation. Hang out with those that think like you do. However, indulging in confirmation bias can leave one a bit blinded, vulnerable to making imprudent decisions or following poor advice. Here’s a suggestion – look for material that runs counter to your thinking. In this uncertain moment, if you are nervous about how much the market has risen, high equity valuations, worried about your portfolio, read some bullish predictions. Many analysts point to data showing that previous periods of similar market strength has led to further gains for the rest of the year. Lava Wealth benefits from rising markets and I hope the optimistic predictions pan out. And I will be better prepared by resisting the comfort and appeal of confirming opinions, instead engaging actively with some contrary thinking, considering the rationales offered for why the markets may have peaked for the year. Consider dealing with your own fears, hopes and uncertainties the same way, even if only by engaging with your advisor and expressing your feelings and asking them to make a case that contradicts them.
An investment area that also finds itself in the midst of tremendous changes is the world of sports (OK, it's a bit of a weak segue but stick with me, there are rewards coming). Valuations of sports properties have skyrocketed, sports betting is commonplace, and women’s sports have taken a much greater hold in the public mind. Below are two links to two interesting articles related to all this. The first, a short piece in the New Yorker, is about a pioneer – the woman who opened the first women’s sports bar…only women’s sports on the TV’s all the time. Mocked initially, it was the first of what now number several dozen similar establishments across the country, in the process an assertion of pride and a gathering spot for local lesbian communities, though all are welcome.
Celebrating the holiday weekend, I've got an additional interesting find to offer. In contrast to the rising cost and money focus of the sports world, please open this link to an article from Yahoo Sports about a wildly successful, hugely popular team that I had never heard of…and you may very well not have either. I present to you the Savannah Bananas. It’s baseball like you have never seen it, played for fun and entertainment, filling baseball and football stadiums around the country. It is a fascinating story and I was frankly shocked I had never heard about it at all.