Episode description
Recency bias: a cognitive bias that favors recent events over historic ones; a memory bias. I mention this because a composition of the 500 largest companies in the US, also known as the S&P 500, has recently hit all-time highs. While of course that’s a good thing, recency bias is running rampant, making it difficult to remember times when the S&P 500 has severely lagged behind other markets. And when this causes investors to abandon the science of investing and instead opt to own just a single asset class, problems can arise.
On today’s episode, we’ll discuss how periods of return, especially recent ones, can paint a very different picture than what has unfolded over longer time frames and how the infatuation with the best performers can taint the way we look at our own portfolios.