Confirmation Bias: How Your Brain Sabotages Your Portfolio (And How XEQT Protects You)

I want to tell you about the dumbest investing conviction I ever held.

In early 2022, I was absolutely certain that Canadian cannabis stocks were about to stage a massive comeback. I’d ridden the wave in 2018, sold near the top (mostly by luck), and after watching the sector crash 80%+ from its highs, I convinced myself that the bottom was in. Legalization was expanding. Revenue was growing. The worst was over.

So I bought a basket of cannabis stocks and then did what felt like “research” — I spent hours reading bullish articles on cannabis industry websites, followed pro-cannabis investors on Twitter, joined a Discord group dedicated to “weed stocks,” and watched YouTube videos titled things like “Why Cannabis Stocks Are the Most Undervalued Sector in 2022.”

Here’s what I did not do: I did not read the bearish reports. I did not look at the balance sheets carefully. I did not pay attention to the analysts downgrading the sector. When someone in a Reddit thread pointed out the ongoing cash burn and dilution, I mentally dismissed them as a “hater who doesn’t understand the industry.”

Nine months later, my cannabis positions were down another 45%. The “comeback” I’d been so sure about never materialized. And looking back, every warning sign had been right there in front of me — I just refused to see it.

That experience cost me real money, but it taught me something priceless: my brain was not on my side. What I’d been doing wasn’t research. It was confirmation bias — the psychological tendency to seek out, favour, and remember information that confirms what you already believe, while ignoring or dismissing anything that contradicts it.

And once I understood confirmation bias, I realized it had been quietly sabotaging my portfolio for years.

1. What Is Confirmation Bias, Exactly?

Confirmation bias is one of the most well-documented cognitive biases in psychology. It was formally described by psychologist Peter Wason in the 1960s, and since then, hundreds of studies have confirmed (no pun intended) just how pervasive and powerful it is.

At its core, confirmation bias works like this: once you form a belief, your brain automatically filters information to support that belief and downplay anything that challenges it.

This isn’t something you choose to do. It happens unconsciously, automatically, and constantly. Your brain is wired to protect its existing beliefs because changing your mind requires cognitive effort, emotional discomfort, and an admission that you might have been wrong. Your brain hates all three of those things.

Everyday Examples of Confirmation Bias

Before we get into investing, consider how confirmation bias shows up in daily life:

• Buying a car: You decide you want a Toyota RAV4. Suddenly, you notice RAV4s everywhere on the road. You read glowing reviews and skip the critical ones. You tell yourself it’s the obvious best choice. (Meanwhile, a Honda CR-V might have been better for your needs, but you never seriously considered it.)

• Political beliefs: You follow news sources and commentators who share your political views. When the other side makes a fair point, you find reasons to dismiss it. When your side makes a weak argument, you rationalize it.

• Health decisions: You Google your symptoms and latch onto the diagnosis that matches what you already suspect. You read three articles that confirm it and stop searching — even though the fourth article would have told you something completely different.

• Hiring decisions: Studies show that interviewers often make up their mind about a candidate within the first few minutes and then spend the rest of the interview looking for evidence to support that snap judgment.

Confirmation bias is not about intelligence. Smart people are just as vulnerable — in some ways more so, because they’re better at constructing sophisticated-sounding arguments to defend their existing beliefs.

2. How Confirmation Bias Destroys Investment Returns

Now let’s talk about where confirmation bias really hurts: your portfolio.

When you pick a stock or make an investment thesis, confirmation bias kicks into overdrive. You’ve put money on the line, which means your ego, identity, and financial well-being are all tied to being right. Your brain responds by building an invisible fortress around your belief and filtering out anything that threatens it.

Here’s how it manifests in investing:

a) You Only Read Bullish Analysis on Stocks You Own

This is the most common form. You buy shares of Shopify, and suddenly your YouTube recommendations are full of “Why Shopify Will 5x” videos. You read the bullish analyst reports and skip the bearish ones. You bookmark the blog that says Shopify is undervalued and unsubscribe from the one that raised concerns about its valuation.

You’re not doing research anymore. You’re doing reassurance.

b) You Dismiss Bearish Arguments Without Genuine Consideration

When someone presents a valid concern about one of your holdings — slowing revenue growth, insider selling, competitive threats — your first instinct isn’t to evaluate the argument on its merits. It’s to find a reason to dismiss it.

“That analyst has been wrong before.” “They don’t understand the long-term vision.” “Short sellers are just trying to drive the price down.” These responses feel rational in the moment, but they’re just your brain protecting a belief it doesn’t want to give up.

c) You Follow Only People Who Agree with You

Social media makes this worse than ever. You follow the investors, commentators, and newsletters that share your bullish view. You mute or unfollow anyone who disagrees. Over time, you build an echo chamber where everyone “agrees” that your investment thesis is correct — because you’ve systematically removed anyone who doesn’t.

d) You Interpret Neutral News as Positive

Confirmation bias doesn’t just make you seek out supportive information. It actually changes how you interpret new information. A quarterly earnings report that’s roughly in line with expectations? If you’re bullish, you see it as “solid performance, right on track.” If you were bearish, you’d see the same report as “growth stalling, nothing to get excited about.”

Same data. Completely different interpretation. And you won’t even notice it happening.

e) You Anchor to Your Purchase Price

This is a related bias, but confirmation bias amplifies it. Once you buy a stock at $50, that price becomes your anchor. If it drops to $35, you tell yourself it’s “on sale” and double down — not because you’ve done new analysis, but because your brain refuses to accept that $50 was the wrong price. You seek out any information that supports the idea that it’ll bounce back.

3. What the Research Says: Confirmation Bias and Investor Performance

This isn’t just theory. Academic research consistently shows that confirmation bias and overconfidence lead to measurably worse investment outcomes.

Brad Barber and Terrance Odean conducted some of the most cited studies on individual investor behavior. Their research at UC Davis analyzed the trading records of tens of thousands of retail investors and found:

• Individual investors underperform the market by an average of 1.5% per year after trading costs, largely due to overconfident trading driven by biased information processing.
• The most active traders performed the worst. Those who traded the most — often because they were most convinced they had superior insight — underperformed by 6.5% annually.
• Men traded 45% more than women and earned risk-adjusted returns that were 1.4% lower per year, largely due to higher overconfidence (which confirmation bias fuels).

A separate DALBAR study found that the average equity fund investor earned roughly 3-4% less per year than the S&P 500 over 20-year periods. Much of this gap comes from poor timing decisions driven by biased thinking — buying after prices have risen (confirming bullish feelings) and selling after they’ve fallen (confirming fear).

Here’s a simple comparison:

The pattern is clear: the more decisions you make — and the more conviction you bring to each one — the more room confirmation bias has to damage your returns.

4. Active Stock Picking: A Confirmation Bias Playground

If you’re picking individual stocks, you’re swimming in a pool of confirmation bias. Here’s why:

Every stock pick is a thesis. When you buy a stock, you’re making a claim: “This company is worth more than its current price, and the market will eventually recognize that.” That thesis becomes part of your identity. You’re not just saying the stock is good — you’re saying you are smart for seeing it.

Now your brain has to defend that identity. So it:

1. Seeks confirming evidence — bullish analysis, positive news, supportive Reddit threads
2. Avoids disconfirming evidence — bearish reports, negative news, critical analysis
3. Rationalizes setbacks — “it’s just short-term noise,” “weak hands are selling,” “the market is wrong”
4. Credits successes to skill — “I knew this would happen, my thesis was right”

This creates a dangerous feedback loop. Every time a stock goes up, you become more confident in your stock-picking ability. That confidence makes you more susceptible to confirmation bias on the next pick. And so on, until you eventually take a big enough loss to break the cycle — or worse, you never learn and keep underperforming for decades.

Compare this to a passive index approach like XEQT. With XEQT, there’s no thesis to defend. You’re not claiming any particular company or sector is undervalued. You’re simply saying: “I believe the global economy will grow over the long term, and I want to own a piece of all of it.”

That’s a much harder thesis for confirmation bias to latch onto, because there’s nothing specific to confirm or deny.

5. How XEQT Neutralizes Confirmation Bias

This is the part that changed everything for me. When I switched the core of my portfolio to XEQT, I didn’t just get better diversification — I removed the psychological conditions that let confirmation bias thrive.

Here’s how:

a) No Individual Thesis to Defend

With XEQT, you hold over 9,000 companies across Canada, the U.S., international developed markets, and emerging markets. You’re not betting on any single company, sector, or country. So there’s no specific belief for your brain to protect.

When Shopify drops 20%, you don’t need to defend your Shopify thesis — because you don’t have one. It’s just one tiny piece of a massive, diversified portfolio. When emerging markets struggle, you don’t panic — because you also own North American and international developed stocks that are doing fine.

b) No Selective Information Seeking

When I was picking stocks, I spent hours consuming content about my specific holdings. With XEQT, there’s nothing to obsessively research. I don’t need to read quarterly earnings reports for 9,000 companies. I don’t need to follow specific analysts or join stock-specific communities. The entire research process — and all the bias that comes with it — simply goes away.

c) No Emotional Attachment to Holdings

This one surprised me. I used to feel genuine emotional attachment to my stock picks. Selling a losing position felt like admitting personal failure. Watching a stock I sold go up felt like a personal insult. These emotions are confirmation bias’s best friends — they keep you locked into bad positions and afraid to make rational changes.

With XEQT, there’s no emotional attachment to any individual holding. It’s a systematic, rules-based investment. BlackRock handles the rebalancing. I just keep buying.

d) The “Right Amount” of Boring

Here’s something nobody tells you about successful investing: it should be boring. If your portfolio is exciting, you’re probably doing it wrong. Excitement means you’re taking concentrated bets, checking prices frequently, and making emotional decisions — all of which are playgrounds for confirmation bias.

XEQT is gloriously boring. I buy it on a regular schedule regardless of what the market is doing. I don’t check it daily. I don’t need to. And that boredom is a feature, not a bug, because boredom means bias has nothing to work with.

6. The Confirmation Bias Self-Check: What It Makes You Do vs. What Works

Here’s a practical table you can use as a gut-check the next time you’re making investment decisions:

If you recognize yourself in the left column — and be honest, because most of us do — that’s confirmation bias at work.

7. Six Practical Debiasing Techniques for Investors

Even if you invest primarily in XEQT (which I think you should), understanding debiasing techniques is valuable. You’ll still make financial decisions — about your emergency fund, real estate, career moves, and whether to keep or sell legacy stock positions. These techniques will help you think more clearly about all of them.

1. Practice “Steel Manning” the Opposing View

Before making any investment decision, force yourself to construct the strongest possible argument against your position. Not a straw man that’s easy to knock down — a genuine steel man that a smart person on the other side would actually make.

If you can’t articulate a compelling bearish case for a stock you want to buy, you haven’t done enough research. You’ve just done enough confirming.

2. Use a Pre-Commitment Strategy

Before you buy a stock, write down:

• Your specific thesis (why you think it will go up)
• What evidence would prove you wrong
• At what price you would sell (both up and down)
• A timeline for your thesis to play out

Then commit to actually following these rules. This forces you to define what “being wrong” looks like before your ego gets involved.

3. Seek Out Disconfirming Information First

Deliberately read the bearish case before the bullish one. Find the smartest critic of any investment you’re considering and read their arguments carefully. If their best argument is weak, that actually strengthens your conviction in a legitimate way. If their argument is strong, you’ve saved yourself money.

4. Create a Decision Journal

Keep a written record of every significant investment decision, including:

• What you bought and why
• What you expected to happen
• What actually happened
• What you learned

Over time, this journal will reveal your blind spots and biases more clearly than anything else. Most investors who start decision journals are humbled by what they find.

5. Use the “Outsider Test”

Before making a decision, ask yourself: “If a friend came to me with this exact situation — same stock, same thesis, same evidence — what advice would I give them?” We’re much better at seeing bias in others than in ourselves. Using an outsider perspective can help you evaluate your own decisions more objectively.

6. Automate as Much as Possible

The single best debiasing technique for investing is to remove yourself from the decision-making process entirely. Set up automatic contributions to XEQT on a regular schedule. Don’t check prices daily. Don’t read market commentary obsessively. Let the system work.

This is exactly what I do now. Every payday, an automatic transfer goes to my Wealthsimple account, and I buy XEQT. No analysis. No thesis. No bias. Just consistent, disciplined investing.

8. “But What If I’m Right?”

I know what some of you are thinking: “Sure, confirmation bias is real, but what if I actually am a good stock picker? What if my thesis is correct?”

Fair question. And here’s the honest answer: you might be. Some people do beat the market over certain periods. But consider this:

• Even professional fund managers can’t do it consistently. The SPIVA Canada Scorecard consistently shows that over 90% of actively managed Canadian equity funds underperform their benchmarks over 10-year periods. These are people with Bloomberg terminals, research teams, and decades of experience.

• You can’t distinguish skill from luck in small samples. If you’ve beaten the market for 2-3 years, that tells you almost nothing statistically. You need 15-20+ years of data to have reasonable confidence that outperformance is skill-based rather than luck.

• The cost of being wrong is enormous. If you’re wrong about your stock-picking ability, you could lose decades of compound growth. If you’re “wrong” about indexing — meaning you could have beaten the market but chose XEQT instead — you still earn strong, market-rate returns. The downside risk is radically asymmetric.

• Confirmation bias makes you overestimate your ability. This is the cruelest part. The very bias we’ve been discussing makes you more confident in your stock-picking skills than you should be. You remember the wins, forget the losses, and construct a narrative where you’re a skilled investor — even when the data says otherwise.

I’m not saying it’s impossible to beat the market. I’m saying the odds are heavily against you, the costs of trying are high, and your own brain is working against you the entire time. For the vast majority of Canadian investors, XEQT offers a better path.

9. My Portfolio After Beating Confirmation Bias

Let me tell you what my investing life looks like now, compared to before.

Before (active stock picking):

• Spent 5-10 hours per week reading about my holdings
• Followed 30+ stock-specific accounts on social media
• Checked my portfolio multiple times per day
• Felt anxious when stocks went down and euphoric when they went up
• Averaged approximately 4-5% annual returns after accounting for my worst picks
• Constantly second-guessed myself

After (XEQT-focused):

• Spend maybe 15 minutes per month on investing
• Follow a handful of evidence-based investing accounts
• Check my portfolio once a month, sometimes less
• Feel calm regardless of short-term market movements
• My portfolio tracks global market returns, minus a tiny 0.20% MER
• Never second-guess the strategy

The difference is night and day. And it’s not just about returns — it’s about mental health, free time, and the ability to focus on things that actually improve my life, like my career, relationships, and hobbies.

XEQT didn’t just fix my portfolio. It fixed my relationship with money.

Key Takeaways

1. Confirmation bias is universal. Every investor is affected, regardless of intelligence or experience. Acknowledging it is the first step.

2. Active stock picking is a confirmation bias trap. Every position you hold creates a thesis your brain will defend, often to your financial detriment.

3. The research is clear. Individual investors systematically underperform the market, and biased information processing is a primary driver.

4. XEQT neutralizes confirmation bias structurally. When you own everything, there’s no thesis to confirm, no position to defend, and no selective information seeking to do.

5. Debiasing techniques help, but elimination is better. You can learn to think more rationally about money, but the most effective strategy is to remove bias-prone decisions from the process entirely.

6. The cost of overconfidence is asymmetric. Being wrong about stock picking costs you compound growth. Being “wrong” about indexing still earns you market returns. The math favours humility.

7. Boring is beautiful. The best investing strategy is the one you can stick with without your brain sabotaging you. For most people, that’s XEQT — simple, diversified, and blissfully free of bias.

Your brain is an incredible organ. It keeps you alive, solves complex problems, and creates beautiful things. But when it comes to investing, it’s working against you more often than you realize. The smartest thing you can do is build a portfolio that doesn’t give it the chance to interfere.

For me, that portfolio is XEQT. And I’ve never been more confident — rationally confident — in an investment decision.