Recency Bias
The cognitive bias of giving excessive weight to recent events when making investment decisions, ignoring longer historical context.
What is Recency Bias?
Recency bias is the tendency to view recent events as more representative of future outcomes than the broader historical record supports. In investing, it causes investors to extrapolate current trends — buying aggressively after a strong bull market (assuming it will continue) and panic-selling after a sharp decline (assuming further losses). Recency bias leads to buying high and selling low — the opposite of good investment discipline. It is related to the 'availability heuristic,' where vivid, recent memories are more easily recalled and thus weighted more heavily than statistically relevant base rates.
Example
After the S&P 500 fell 34% in March 2020, equity fund outflows surged as investors assumed the decline would continue. Yet within 12 months the index had recovered fully and reached new highs. Investors who sold near the bottom suffered permanent losses, driven by recency bias projecting the crash forward rather than trusting longer historical patterns of recovery.
Source: Investopedia — Recency Bias