Death By Anecdote

Suppose you have a perfectly healthy 100-year-old neighbor who never exercises and smokes two packs of cigarettes a day. Would you quit exercising and start smoking two packs a day in hopes of living a healthy life into your 90s?  Would you begin living your life based on their story?  Of course not!  This could, quite literally, lead to death by anecdote.  You would be making a serious, life altering decision based on a single data point – your neighbor.  As silly as this example seems, you may unknowingly be making investment decisions based on the financial equivalent of your 100-year-old chain-smoking neighbor.

It is incredibly important to avoid making your investment decisions based on the stories and limited data presented by financial prognosticators, financial “experts”, people selling books and seminars, etc.  The stories and facts presented are generally hand selected to lead you to draw a certain conclusion.  If enough stories and facts are pieced together, you can get the false impression that you are hearing all the data.  Always remember that the plural of anecdote is not fact.  Left unchecked, making investment decisions based on stories, anecdotes and limited data can cause you to make rash decisions and abandon a disciplined and well thought out financial strategy.