Financial news can be an incredibly useful source of information when investing your wealth, but the way you interpret it may depend partly on the views you already hold.
In fact, two people can read the same economic update or company results and reach different conclusions.
If you’re already concerned that markets are overvalued, for example, a headline about falling share prices might reinforce your belief.
Meanwhile, if you’re optimistic about the outlook, you might place more emphasis on positive earnings figures or forecasts for future growth.
This tendency to favour information that supports existing beliefs, while giving less weight to evidence that challenges them, is known as “confirmation bias”.
When investing, confirmation bias can make it harder to assess new information objectively or even push you to make decisions that don’t align with your long-term financial plan.
Continue reading to learn how confirmation bias could influence the way you interpret investment news and some of the steps that could help you make more measured decisions.
Your brain naturally looks for information that fits with what you already believe
Confirmation bias results from the way your brain processes large amounts of information efficiently rather than a conscious decision to ignore inconvenient facts.
You encounter far more information each day than you could realistically analyse in detail. As a result, your brain relies on mental shortcuts to decide what deserves your attention and how new information fits in with what you already know.
If new information supports one of your established views, it can be relatively easy to accept. Conversely, evidence that contradicts you may require more thought because you need to reconsider an existing opinion.
In terms of investing, if a particular asset has performed well for you over several years, you may develop confidence that goes beyond its fundamentals.
Positive news could then feel persuasive since it validates both your original decision and the gains you’ve already experienced.
What’s more, if you’ve spent considerable time researching an investment or committed a significant amount of money to it, evidence challenging your position might feel uncomfortable.
This could cause you to scrutinise negative information while accepting supporting evidence more readily.
Of course, this doesn’t necessarily mean your original belief is incorrect. However, understanding this psychological phenomenon could make it easier to recognise when confidence in a particular view is influencing how you assess new information.
The sheer volume of investment news can make confirmation bias harder to spot
Markets generate a constant stream of information these days, and the same development can often lead to several interpretations.
For instance, some might view an interest rate cut positively, since lower borrowing costs could support households and businesses.
Alternatively, investors might see it as evidence that policymakers are concerned about weaker growth.
This means a headline or analysis often appears to support an existing belief. As such, it’s important to consider where your information comes from.
Relying on trusted sources that consider developments in a wider context, rather than focusing on individual headlines, may help you build a more balanced picture.
Our monthly Window on the World updates, for example, offer insight from our investment team and discuss our approach to investing.
The problem can become more pronounced during periods of volatility, when markets move quickly and news coverage ramps up.
Vanguard analysed global stock market returns between 1980 and 2025 and found that 12 of the best 20 trading days occurred during years that ultimately delivered a negative return.
Meanwhile, 9 of the 20 worst days occurred during positive years.
This shows how quickly conditions can change and why reacting to short-term news could cause you to miss subsequent periods of recovery.
Searching for opposing evidence could help you see the bigger picture
A practical way to reduce the effects of confirmation bias is to test your own views. If you strongly believe a market will perform well, you could consider the evidence suggesting the opposite.
Or, if worrying headlines make you pessimistic, it may help to seek reliable evidence that presents a different perspective.
It can also be useful to distinguish between facts and forecasts. An official inflation reading or company earnings figure is measurable information, while predictions about what it means for markets are interpretations.
Remember: it is nearly impossible to accurately predict what might happen to markets, and even professionals struggle.
So, considering several reliable sources and placing new information in context could prevent one headline from carrying too much weight in your mind.
Your long-term financial plan can also provide an objective reference point
Your financial plan will likely already have been designed around your goals, investment time frame, and attitude to risk, while diversification could reduce your reliance on any single part of the market.
As a result, disappointing news about one sector or a period of volatility may not affect your overall investment strategy.
Granted, it can still be challenging to recognise confirmation bias when your hard-earned wealth is on the line.
So, we could work with you to regularly review your investments alongside your goals, helping you make informed decisions based on your financial plan, rather than emotion.
To find out more about how we can help you recognise the effects of confirmation bias and keep a cool head, please use our search function to find your nearest Verso office, or for Verso Investment Management enquiries, please contact us at info@versoim.com or call 020 7380 3300.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.