Recency bias.
In plain English
Recency bias is the tendency to overweight recent events when judging what comes next, treating the latest stretch as if it will simply keep going. In money it makes a few strong years feel like the new normal, tempting people to pile into what just went up, and it makes a downturn feel permanent, tempting them to sell at the bottom. It is why performance chasing is so common: the recent past is vivid and available, so it crowds out the longer record that would give a fuller picture.
01Why it matters
Recency bias pushes people to buy high after a run and sell low after a drop, so recognizing it helps an investor weigh long-run history against the emotional pull of the most recent stretch.
02The math, step by step
After a couple of strong years in one sector, it feels obvious it will keep climbing, so money floods in near the top. After a sharp drop, it feels like the decline will never end, so people sell at the bottom. In both cases the recent past is overweighted.
03What this is NOT
It is not the same as using current information. Sound analysis weighs recent data in the context of the longer record. Recency bias lets the latest stretch dominate, treating a short run as if it predicts the future on its own.
04Receipts
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