What Playing Wordle Has Taught Me
It seems that there are always things in capital markets and economics to think about, “headwinds” of various kinds that cause us to worry or threaten to derail our financial expectations. For example, here is a chart showing various worrisome events since 1970, overlaid against the growth of a hypothetical investment in the S&P 500 Index:
Today, we face many similar investment matters: Will inflation be a permanent problem? Will the Fed throw us into a recession by raising rates too high or too fast? How will 5% mortgage rates impact the housing market? How big of a threat to the U.S. economy is the Russian invasion of Ukraine? Thoughtful professional investors, economists, and researchers often disagree when expressing their opinions on these and many other related topics. Reading from a variety of such sources helps us to form a well-balanced view of possible outcomes.
As an investment analyst, I have always endeavored to assimilate and digest these different views, weighing possible outcomes and, finally, settling on my own view on things. I try to seek out and understand opinions contrary to my own, and, of course, update my views, if needed, as new facts arise over time. I’m an analyst, after all (with the charter to prove it).
But then Wordle came along. Wordle showed me something disturbing about the way my brain works. And, no, it’s not because I’m a Wordle addict (which I am).
For those of you not familiar, Wordle is a free, daily, online word game. Apparently, it has now gone viral (whatever that means), with several hundred thousand daily players. The goal is to guess what the secret, randomly-selected, five-letter English word is, using no more than six guesses. There is one word per day. With every attempt, the game tells you which letters were correctly guessed, with a green tile if the letter is in the correct position and a yellow tile if the letter is in the wrong position:
What Wordle taught me is that I have a tough time training my brain to think differently if I’m not seriously focused on it. An example may illustrate this. Suppose I enter my first guess as the word MATCH. Wordle comes back to show that the C and the H are correct, but in the wrong positions. What happens next often frustrates me as I search my brain for possible words with a C and an H. Alas, my immediate ideas “off the top of my head” are often similar words like HATCH or CATCH. I seem to initially ignore the fact that I cannot use the letters M, A, or T in my second guess, much less CH in the fourth and fifth positions, especially if I’m not 100% focused on the task at hand.
When this happens to me, I wonder if I might have some brain defect or if this is actually common with other Wordle addicts. What it teaches me is that, in order to fully appreciate another point of view, I have to give it my full, undivided attention. Otherwise, my lazy brain just stays in its “comfort zone,” not being seriously challenged to consider new information or points of view. Behavioral psychologists call this confirmation bias.
And just in case my Wordle discovery was not bad enough, I recently read about an experiment in which participants (pretending they were school administrators) were asked to check if report cards were marked correctly. “The cards have a letter on one side and a number on the flip side. The rule that must be checked is if the card has the letter D on one side, it must have the number 3 on the flip side.” You are given four report cards to check, showing a D, K, 3, and 7. You could, of course, just turn them all over, but the task is to check the minimum number of cards to make sure the rule is not violated. What is the minimum number of cards you have to turn over?
Like most people in the original experiment, I chose two cards, D and 3, to turn over, but the correct answer is D and 7. Why? Because the rule only says that if there is a D on one side, the other side must have a 3, not the other way around. By turning over the card with the number 3, the participants are looking for confirmation of their prior belief that the flip side says D. Humbled again.
In closing, I never tire to remind readers that investing is always future oriented. Since none of us know what the future holds, we make financial decisions based on available evidence, which is historical. We believe that this gives us the best chance to meet our financial goals in the long run, without pretending to know the unknowable. Is history an infallible guide? Definitely not, but we need to decide one way or the other. The best way to do that is to be aware of your behavioral biases (such as confirmation bias) as you think about implementing investment decisions.
Oh, I do have one more confession to make: I also play Quordle. It is similar to Wordle, but here you try to guess four words instead of one. You have nine tries to get them all right. My head hurts just thinking about it.
John Finley, CFA, serves as Chief Investment Officer for Coyle Financial Counsel and is responsible for overseeing the investment process. John’s prior experience includes managing institutional fixed-income portfolios for corporations, pension funds, non-profit organizations and foundations at several large, global asset managers. With more than 20 years of institutional investment experience, he is energized by helping individuals understand the role investing plays in meeting their long-term financial goals.
We value your comments and opinions, but due to regulatory restrictions, we cannot accept comments directly onto our blog. We welcome your comments via e-mail and look forward to hearing from you.
All information is from sources deemed reliable, but no warranty is made to its accuracy or completeness. This material is being provided for informational or educational purposes only, and does not take into account the investment objectives or financial situation of any client or prospective client. The information is not intended as investment advice, and is not a recommendation to buy, sell, or invest in any particular investment or market segment. Those seeking information regarding their particular investment needs should contact a financial professional. Coyle, our employees, or our clients, may or may not be invested in any individual securities or market segments discussed in this material. The opinions expressed were current as of the date of posting but are subject to change without notice due to market, political, or economic conditions. All investments involve risk, including loss of principal. Past performance is not a guarantee of future results.
Copyright © 2022 Coyle Financial Counsel. All rights reserved.
 Email from First Trust Advisors received 4/13/22
 Mistakes Every Investor Makes (And How To Avoid Them), by Joachim Klement (Harriman House, 2020)