Becoming a Better Investor: Availability Misweighing Tendency

In Poor Charlie’s Almanack, legendary investor Charlie Munger highlights 25 psychological tendencies that influence how we think and make decisions in our day to day lives. However, these insights are just as relevant to investing as they are to everyday life, and recognising these biases can help us avoid common mistakes and make more rational, informed choices as investors.

This week, we’re looking at the eighteenth tendency on the list, the Availability Misweighing Tendency, and how it impacts investing decisions.

What is it?

Munger says that the human brain isn’t perfect and has a tendency to “work” with what is easily available to it. In other words, there’s comfort in familiarity. We tend to favour information and examples that are readily available to us, not because it is in our best interest or statistically relevant, but because it is easily accessible and maybe even has an emotional impact.

Munger says, 

“Man’s imperfect, limited-capacity brain easily drifts into working with what’s easily available to it. And the brain can’t use what it can’t remember or what it is blocked from recognising, because it is heavily influenced by one or more psychological tendencies bearing strongly on it… And so the mind overweighs what is easily available and thus displays Availability-Misweighing Tendency.”

This tendency is a mental short cut of sorts that pushes us to make connections or decisions based on recent, vivid and/or readily-available examples, without too much critical thinking.

How does it play out in the world of investing?

Our brains have a preference for information that is easy to recall, as opposed to rational statistical reasoning — we’ve been wired for survival and tend to respond quickly to emotional or receptive information and data.

As investors, we may end up giving more importance to data that is recent and heavily-publicised, irrespective of their factual significance. For example, investors may shy away from investing in a certain sector after a company is involved in a corporate scandal or goes bankrupt. Similarly, if a certain sector or company rallies in trade or receives favourable coverage in the media for a considerable period, we may invest in it purely on the basis of this news, rather than looking at the fundamentals, business model and long-term potential.

Our thinking begins to get lopsided: we give more weight to information that is vivid in our memory or more easily available, rather than digging into company filings and facts. And we may end up investing in an unhealthy manner.

So how can we safeguard against this tendency to focus on what’s easily available and easy-to- digest? Munger emphasises that the first step is being aware of these tendencies so we can recognise them when they crop up, and this helps us develop a disciplined and analytical approach to investing.

• Data, not drama: Media coverage often focuses on extreme events like market crashes, surges, or geopolitical shocks. This can cause us to buy or sell irrationally based on fear or greed rather than fundamentals. Instead, we should keep a neutral outlook and focus on company earnings, balance sheets, competitive advantages, and long-term economic trends rather than headlines or noise.
• Take a long-term approach: Relying on the latest news and trends or on information that is easily available can lead to knee-jerk reactions and “performance chasing,” where we invest in companies that have outperformed in the recent past, assuming they will continue to outperform. Instead, look for information and data that speaks to the long-term value a company holds. We should weigh our investments based on its statistical significance, not on how easily it comes to mind.
• Learn from history: Herd mentality and the tendency to “follow the crowd” usually happens when many people start investing based on easily-available information, which can fuel bubbles or investor panic. Study past investment cycles and crises to understand how the Availability Misweighing Tendency bias has led to collective bad decisions.

The Availability-Misweighing Tendency is in some ways a warning to investors: just because something is vivid in our memory or recent does not mean it is important or a sound investment. When we are flooded with information, the key to successful investing is the ability to sift through the noise, identify what truly matters, and weigh evidence properly.