Hindsight Bias and XEQT: Why 'I Knew It All Along' Is the Most Dangerous Thought in Investing

In hindsight, it was so obvious that the COVID crash of March 2020 was the buying opportunity of a lifetime. The market dropped 34% in about five weeks, then recovered everything within months and went on to one of the greatest bull runs in history. If you had dumped your entire savings into the market on March 23, 2020 – the exact bottom – you would have roughly doubled your money within 18 months. So obvious, right?

Except here is what I actually thought at the time.

I was terrified. I remember sitting in my home office – suddenly working from home indefinitely – refreshing my Wealthsimple app every twenty minutes and watching the red numbers get worse. The news was apocalyptic. Italy’s hospitals were overflowing. The entire global economy was shutting down. Nobody knew if the lockdowns would last months or years. Nobody knew if there would be a vaccine, or if it would take a decade to develop one. I read think pieces from serious economists predicting a depression worse than 2008, and I believed them.

I did not buy the dip. I almost sold. I had the sell order partially filled out – I was going to move everything to cash and “wait for things to settle down.” The only reason I didn’t pull the trigger was that my internet connection froze at the exact wrong moment (or, as it turns out, the exact right moment), and by the time I refreshed, I had talked myself off the ledge.

Today, that whole episode feels inevitable. Of course the market was going to bounce back. Of course the crash was temporary. Of course buying at the bottom was the right call. It all seems so clear now.

But it wasn’t clear. Not even a little bit. And if I’m being completely honest with myself, the reason I now remember it as “obvious” is because of a well-documented cognitive flaw that has cost investors more money than almost any other psychological trap: hindsight bias.

1. What Is Hindsight Bias?

Hindsight bias is the tendency, after an event has occurred, to see that event as having been predictable – even when there was no basis for predicting it at the time. Psychologists call it the “I knew it all along” effect, and it is one of the most thoroughly documented biases in behavioural research.

The term was coined by psychologist Baruch Fischhoff in his landmark 1975 study. Fischhoff gave participants descriptions of historical events – things like a British military campaign in Nepal in 1814 – and asked them to estimate the likelihood of various outcomes. Some participants were told the actual outcome beforehand; others were not.

The results were striking. Participants who already knew what happened consistently rated that outcome as far more likely than those who didn’t. And here is the truly insidious part: they genuinely believed they would have predicted it all along, even though the data proved otherwise. They weren’t lying. They honestly felt the outcome had been obvious.

Fischhoff called this phenomenon “creeping determinism” – the gradual, unconscious process by which uncertain events come to feel inevitable after the fact. Once you know the ending, your brain quietly rewrites the story so that every clue points toward that ending. The ambiguity, the uncertainty, the genuine unknowability of the moment – all of that gets erased, replaced by a clean narrative where the outcome was always going to happen.

This connects directly to what Nassim Nicholas Taleb explored in The Black Swan and Fooled by Randomness. Taleb describes the narrative fallacy – our compulsive need to construct stories that make sense of random events – and hindsight bias is one of its most powerful engines. After the fact, we don’t just explain what happened; we convince ourselves we knew it was going to happen. That false sense of predictability makes us dangerously overconfident about the future. (For a deeper dive, see my post on the narrative fallacy.)

Why Your Brain Does This

Hindsight bias is not a character flaw. It is a feature of how human memory works. Our brains are not video recorders that store perfect records of what we thought and felt at a given moment. They are reconstruction engines. When you recall a past event, you don’t play back a tape – you rebuild the memory from scratch, using what you know now. And what you know now includes the outcome.

So your brain, doing its best to construct a coherent memory, incorporates the outcome into the reconstruction. The result feels like a genuine memory of having predicted the event, even though it is a post-hoc fabrication. This is why hindsight bias is so hard to fight. You are not consciously choosing to revise your memories. Your brain is doing it automatically, below the level of awareness.

2. How Hindsight Bias Shows Up in Your Portfolio

Hindsight bias is not an abstract academic concept. It is actively shaping your investment decisions right now. Here are the most common ways it shows up in Canadian retail portfolios.

The “I Should Have Bought…” Syndrome

This is the most recognizable symptom. You look at a stock that has gone up 500% and think: “I should have bought that. It was so obvious.”

• “I should have bought Shopify in 2016. I used the platform. I knew it was great.”
• “I should have bought Bitcoin at $1,000. Everyone was talking about it.”
• “I should have bought Nvidia before the AI boom. The GPU thesis was right there.”
• “I should have loaded up on US banks after 2009. The recovery was inevitable.”

Every one of these statements feels true in hindsight. But at the time, did you actually have a high-conviction view that these specific investments would deliver those specific returns? Almost certainly not. You might have been vaguely aware of the opportunity, but awareness is not conviction, and conviction is not action.

Shopify in 2016 was a recently-IPO’d Canadian company with no profits, competing against Magento, WooCommerce, and a dozen other platforms. Buying it required a very specific thesis about e-commerce infrastructure that almost nobody articulated clearly at the time. But in hindsight? “It was so obvious.”

Strategy-Hopping After Seeing Returns

Hindsight bias does not just make you regret past inaction. It actively pushes you into bad future decisions. Here is the pattern:

1. You see that a particular strategy (dividend investing, US tech, crypto, options selling) has performed well recently.
2. Hindsight bias makes that performance feel predictable, not lucky.
3. Because it feels predictable, you conclude that the people using that strategy are smarter or better-informed than you.
4. You abandon your current strategy (say, holding XEQT) and switch to the thing that just worked.
5. You buy in near the top, just as the trend is exhausting itself.
6. The new strategy underperforms. XEQT keeps compounding.
7. A few months later, something else outperforms, and the cycle repeats.

This is one of the main reasons the average investor dramatically underperforms the very funds they invest in. The DALBAR Quantitative Analysis of Investor Behavior has shown this for decades: the average equity fund investor earns significantly less than the funds themselves, largely because they chase performance and switch strategies at exactly the wrong time. Hindsight bias is a major driver of that behaviour. (See also: recency bias, which works hand-in-hand with hindsight bias to push you toward whatever just worked.)

Blaming Yourself for Not Timing the Market

This one is quieter but just as damaging. After a crash and recovery, hindsight bias makes you think: “I should have seen that coming. The signs were all there. Next time, I’ll be smarter.”

This thought feels productive. It feels like learning. But it is actually setting a trap. Now you believe crashes are predictable if you pay enough attention – and that belief will lead you to try timing the market during the next downturn. You will sell too early, buy too late, or sit in cash waiting for a crash that takes years to arrive, missing all the gains.

The research is unambiguous: market timing does not work for the vast majority of investors. But hindsight bias keeps whispering that this time you will see it coming.

3. What the Headlines Said: Before vs. After

One of the best ways to expose hindsight bias is to look at what people actually said before and after major market events. The contrast is stunning.

Look at those “after” columns. Everything is obvious. Everything was predictable. Everyone should have known.

Now look at the “before” columns. That is what the world actually felt like – uncertain, confusing, contradictory, with smart people arguing both sides. The “after” narrative is a fabrication, constructed by your hindsight-biased brain to make a chaotic world feel orderly.

4. The Real Cost of Hindsight Bias: A Destructive Chain Reaction

Hindsight bias would be harmless if it only affected memory. But it creates a chain reaction of increasingly costly mistakes:

Step 1: You rewrite the past. “I knew the market was going to recover after COVID. The signs were all there.”

Step 2: You develop false confidence. “Since I can identify these patterns in hindsight, I must be able to identify them in real time too.”

Step 3: You overestimate your predictive ability. “I’m going to start paying attention to macro signals so I can time the next crash.” (This connects directly to overconfidence bias.)

Step 4: You abandon your passive strategy. “XEQT is fine, but I can do better if I’m more active and strategic about my entries and exits.”

Step 5: You make active bets. You sell before a dip that never comes, or buy individual stocks based on a “thesis” that feels as compelling as every past winner you failed to buy.

Step 6: You underperform. The vast majority of active strategies underperform a simple buy-and-hold index approach over any meaningful time period.

Step 7: Hindsight bias kicks in again. “Well, I should have just stuck with XEQT. That was obvious.”

And the cycle restarts.

The irony is brutal: the very bias that makes you think you can predict the market is the same one that, after you inevitably fail, makes you think your failure was also predictable. Always wise after the fact, never wise enough in the moment.

5. Hindsight Bias vs. Reality: What Your Brain Tells You vs. What Actually Happened

Let’s make this concrete. Here is a side-by-side comparison of what hindsight bias sounds like versus the messy reality of the moment.

The pattern is always the same: the past feels predictable because you already know what happened. The present always feels uncertain because you don’t.

6. Why XEQT Is the Antidote to Hindsight Bias

Here is the thing about hindsight bias: you cannot think your way out of it. It operates below conscious awareness. You cannot simply decide to stop rewriting the past, because your brain does it automatically.

What you need is a system – an investment approach that is structurally immune to the damage hindsight bias causes. That is exactly what XEQT provides.

XEQT removes the need to predict anything

Hindsight bias is only dangerous because it makes you think prediction is possible. If you believe you can identify the next Shopify, time the next crash, or pick the winning sector, you will act on those beliefs and almost certainly underperform.

XEQT eliminates the prediction requirement entirely. You are not betting on any country, sector, stock, or trend. You are owning roughly 9,000 companies across 49 countries, weighted by market cap. You do not need to know what is going to happen next, because you own everything. Whatever wins, you own it. Whatever loses, it is a tiny fraction of your portfolio.

When you don’t need to predict, hindsight bias has nothing to work with. There’s no “I should have known” because there’s nothing you needed to know.

XEQT makes strategy-hopping pointless

One of hindsight bias’s most destructive consequences is the urge to switch strategies after seeing another approach outperform. But with XEQT, there is nothing to switch to that improves your position without introducing prediction risk.

• Want to go all-in on US tech? You are betting that US tech will continue to outperform – a prediction.
• Want to switch to Canadian dividend stocks? You are betting that value will outperform growth and that Canada will outperform international markets – multiple predictions.
• Want to hold cash and wait for a crash? You are betting you can time the market – the most expensive prediction of all.

Every alternative to XEQT requires you to predict something. And hindsight bias will make you feel confident about those predictions, right up until they cost you money.

XEQT automates away the decision points

Hindsight bias strikes hardest at decision points – the moments when you choose whether to buy, sell, hold, or switch. XEQT, combined with automatic contributions through a platform like Wealthsimple, reduces those decision points to near zero. You set up automatic deposits. XEQT gets purchased at regular intervals. You don’t second-guess. You don’t give hindsight bias a chance to whisper in your ear.

The best XEQT investors I know treat their portfolio like a utility bill: it gets paid automatically, they barely think about it, and they check it maybe once or twice a year. That is not laziness. It is a sophisticated defence against one of the most persistent cognitive biases in psychology.

7. How to Fight Hindsight Bias (Beyond Owning XEQT)

While XEQT structurally protects you, it helps to also build habits that weaken hindsight bias in your everyday thinking. Here are practical strategies.

Keep an investment journal

Write down your predictions, expectations, and reasoning before you know the outcome. When the market drops 5%, write what you think will happen next. When a stock is in the news, write whether you think it will go up or down.

Months later, go back and read your entries. You will be shocked at how wrong you were – and how differently you remember those moments. The journal creates an objective record that your hindsight-biased brain cannot rewrite.

Practice the “premortem”

Before making any investment decision, imagine that it is one year from now and the decision turned out badly. Ask yourself: “What went wrong? Why did this fail?” This technique, popularized by psychologist Gary Klein, forces you to consider failure scenarios before hindsight bias can make success feel inevitable.

Remember: experts are terrible at prediction too

Philip Tetlock’s research on expert political judgment – spanning over 80,000 predictions across two decades – found that the average expert was roughly as accurate as a dart-throwing chimpanzee. If professional forecasters with decades of experience cannot predict the future, what makes you think your hindsight-informed intuitions are any better?

Stop consuming “I called it” content

Financial media and social media are full of people who claim they predicted the last crash, called the bottom, or identified the winning stock. Some of them are lying. Others are victims of hindsight bias and genuinely believe their own revisionist memories. Either way, consuming this content reinforces the toxic idea that markets are predictable – an idea that will cost you money the moment you act on it.

Have a written investment plan and follow it

Write it down: “I invest $X per month into XEQT through automatic purchases. I do not sell during downturns. I do not chase performance.” Then follow the plan mechanically, regardless of what hindsight bias is telling you about recent events.

8. The Liberating Truth: Nobody Knew

Here is the thought that changed everything for me: nobody knew.

Nobody knew COVID would trigger a V-shaped recovery. Nobody knew Shopify would be worth $100 billion. Nobody knew Bitcoin would go from $1 to $60,000. Nobody knew the 2008 financial crisis would happen when it did, how bad it would get, or how long the recovery would take.

After each of these events, millions of people rewrote their memories and convinced themselves they saw it coming. But the evidence – the actual forecasts, the actual headlines, the actual investor positioning at the time – tells a completely different story. Fischhoff demonstrated this in 1975. Taleb wrote bestselling books about it. Tetlock proved it with 80,000 data points. And yet, after every single market event, the same chorus rises: “I knew it all along.”

You didn’t. I didn’t. Nobody did.

And that is the most liberating realization in all of investing. If the future is genuinely unpredictable – if even the smartest minds in finance cannot consistently see what is coming – then the pressure is off. You do not need to predict. You do not need to time. You just need to own the whole market, keep contributing, and let time and compound growth do what they have always done.

That is what XEQT is. It is the investment equivalent of saying: “I don’t know what’s going to happen, and that’s perfectly fine.”

Key Takeaways

1. Hindsight bias makes past events feel predictable, even when they genuinely were not. Baruch Fischhoff’s 1975 research demonstrated that once people know an outcome, they consistently believe they would have predicted it – a phenomenon he called “creeping determinism.”

2. This bias creates a false sense of predictive ability. If you believe you could have predicted the past, you will believe you can predict the future. That belief leads to market timing, stock picking, and strategy-hopping – all of which destroy returns.

3. “I should have bought…” is hindsight bias talking. You did not know Shopify, Bitcoin, or Nvidia would deliver those returns. Nobody did. The information that makes those investments look “obvious” today was ambiguous and contested at the time.

4. Headlines prove the point. What the media said before major events bears no resemblance to the after-the-fact narratives of inevitability. The past only looks predictable when viewed through the rearview mirror.

5. Hindsight bias creates a destructive cycle: rewrite the past, develop false confidence, abandon your strategy, underperform, then use hindsight bias to conclude you should have stuck with your original strategy. Repeat forever.

6. XEQT is structurally immune to hindsight bias. It removes the need to predict, makes strategy-hopping pointless, and automates away the decision points where the bias does its damage.

7. Nobody knew. Nobody ever knows. The most honest and profitable position in investing is to accept that the future is unpredictable and invest accordingly – broadly, passively, and consistently.

The next time you catch yourself thinking “I knew that was going to happen,” pause. You didn’t. And the sooner you make peace with that, the sooner you can stop trying to outsmart a market nobody can consistently predict – and start doing the one thing that actually works: owning everything, contributing regularly, and letting time do the heavy lifting.