When you look for evidence that your ideas are working, start by looking for tests that would indicate they're failing.

A simple example of the tendency to seek confirmatory evidence is the so called "2, 4, 6" problem. In this classic experiment, subjects are asked to figure out the rule being used to classify sequences of three integers as correct or incorrect. Subjects were given an example of a correct sequence: 2, 4, 6. The subjects were then asked to discover the rule for evaluating a number sequence as correct or incorrect by trying various three-number sequences. The subjects would be informed whether the number sequences they proposed were correct or incorrect based on the rule. In other words were the stated number sequences consistent with the undisclosed number generating rule. The actual number generating rule was "any three numbers in ascending order". However, by starting with the sequence "2, 4, 6" most subjects assumed the rule "ascending order with equal intervals" and then set about confirming that this rule was correct. If the subjects only look for confirming evidence, they will always be told that their sequence is correct.

- Mark T. Finn and Jonathan Finn, CFA

Lately, I have been looking back at all the stocks I didn't buy in the last year. It's tempting to congratulate oneself, since almost surely, these stocks have dropped so far this year. More useful would be to look for stocks that went up or at least beat the market or an existing portfolio. What tests do you use to test your investing decisions?