Recency Bias

Recency bias is the tendency to assume whatever just happened will keep happening. Assets that rose recently feel like they will keep rising, and ones that fell feel like they will keep falling, which pushes people to buy near tops and sell near bottoms.

It shows up in familiar ways. Money floods into last year's top-performing fund, and that fund often lands below average the following year. Selling everything right after a crash and sitting in cash, only to miss the entire rebound, is the same bias wearing different clothes.

The cause is how memory works. Recent events are stored more vividly, so the brain mistakes what is easiest to recall for what is most representative. A three-month chart feels sharp while a ten-year chart feels vague, and judgment tilts toward the recent by default.

The fix is not sharper judgment but rules set in advance: a fixed amount invested on the same day each month, and rebalancing back to target weights once a year. Also make a habit of viewing at least a ten-year window on any chart, and write down why you bought. Later you can check whether the reason was anything more than recency.