Fundamental Information & Market Interpretation

How We Process Financial Information

Investors don't process financial information like computers. Our brains use mental shortcuts, filters, and distortions that systematically bias how we perceive and interpret market data.

1. Attention: What information do we notice vs ignore?
2. Interpretation: How do we make sense of information?
3. Memory: What do we remember when making decisions?

Attention Biases: What We Notice

Salience Bias: Vivid, dramatic information captures attention while boring but important data gets ignored.

Examples:

• Stock market crash (vivid) vs gradual 15% annual gains (boring but valuable)
• Company scandal headlines vs quarterly earnings improving steadily

Recency Bias: Recent events dominate attention, overshadowing long-term patterns.

• Market up last 3 months → "Bulls forever!"

Confirmation Attention: We notice information confirming our beliefs, filter out contradictions.

• Bullish on Tesla → Notice every positive Tesla story

Interpretation Biases: Making Sense of Data

Same information, different interpretations:

Representativeness in Interpretation:

• "Young charismatic CEO like Jobs → Next Apple!"
• Reality check: Most companies with charismatic CEOs fail

Anchoring in Interpretation:

• Stock was ₹1,000 last year, now ₹600
• Interpret as "cheap" anchored on ₹1,000

Real-World Impact

Dotcom Bubble (1999-2000):

• Attention: Focused on sexy internet stories, ignored P/E ratios of 100+
• Interpretation: "This time is different, old valuation metrics don't apply"

COVID-19 Market (2020):

• March: Attention on death tolls -> Fear interpretation -> Panic sell
• May: Attention on vaccines -> Hope interpretation -> FOMO buy

Key Insights

• Perception ≠ Reality: We see markets through biased cognitive filters
• Salience dominates: Vivid information captures attention unfairly
• Framing matters: Same data, opposite interpretations based on cognitive frame

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