Confirmation Bias

It sometimes sounds so easy. Read a blog. Listen to a podcast. Lickety split. The picture is always the same. A primer on how to maneuver through life with minimal road blocks. Want to retire early? Simple, save 50%. Want to buy an investment property? No problem, follow these simple rules. The message being sent is clear. Success is just a few simple life hacks away. The proof is offered up on countles platforms throughout the internet. We talk often about the successes. The failures, however, rarely make it to prime time. The confirmation bias is staggering. We hold on tight to that which confirms our previous held beliefs, and discount everything else.

Whether we mean to or not, we live somewhat in an echo chamber. This doesn’t mean that we are bad people per se or ignorant for that matter. We just tend to hear what we want to hear.

Real Estate

Doesn’t it sound easy? We all expect to be another Chad Carson or Paul Thompson. And why shouldn’t we? The stories of real estate success abound on the internet. There is tale after tale about how using leverage has created the ideal business. Starting with little, investors accumulate much and prosper. What could possibly go wrong?

Well, it turns out, quite a bit. Short term buying and selling is still speculation. Speculation is risky. The more money we bet, the more we can lose. Buy and hold real estate can be very beneficial. If we choose the right property, in the right area, at the right time.

And don’t even get me started about unexpected repairs and difficult tenants.

It is possible. Don’t get me wrong. But there are just as many real estate failures as successes. Not everybody prospers. But because of confirmation bias, we don’t always recognize it. We tend to hold on more tightly to those stories that confirm our previously held opinions.

Entrepreneurship

Just about everybody should own a business. Heck, with low start up cost principles, there is nothing to lose. Start with nothing. Build something. Monetize. And live the good life.

We get this message a thousand times a day from blogs and podcasts. And we believe it because it is what we want to hear. We tune out all the failures we have seen with family and friends. We discount our blogger buddy who was never able to get that tee shirt company off the ground.

And we plow forward and scratch our heads when we never seem to make headway. Blinded by confirmation bias, we completely forget that most businesses fail spectacularly. Small businesses nearly always shut down within five years of their birth date.

This is no joke. The odds are against us from the get go.

Could FIRE Be the Same?

Could FIRE be the same? Have we surrounded ourselves with such positive messages regarding financial independence and early retirement that we have shielded each other from reality? Maybe we have sated ourselves on confirmation bias and no longer even acknowledge any whiff of negativity.

Could it be that there are are early retirement failures all around us, and we just choose not to see? Careful plans being destroyed by sequence of returns risk, black swan events, or even run of the mill white swan events?

Final Thoughts

When you consider yourself part of a community, it is hard not become entrapped in the echo chamber. It is difficult to see through the confirmation bias and recognize the world for how it really is. There certainly is an overly optimistic view of real estate and entrepreneurship in the personal finance community.

Can the same be said for FIRE in general?

I honestly don’t know.