Recency Bias: Overtrusting Recent Performance
Tesla, ARK, and the Nasdaq 100 in 2020–2021. If you had invested based only on the prior 1–2 years of performance, what outcome would you have met in 2022?
What Is Recency Bias
Recency bias is a cognitive bias that overweights recent events or experiences and underweights long-term history.
In investing, it shows up as the belief that "an asset that has done well recently will keep doing well." Or, conversely, as the fear that "things have been tough lately, so they will keep being tough."
The result of this bias: a pattern where money crowds in at the top and flees at the bottom. In fact, the 2000 dot-com bubble, the 2007–2008 real estate/financial bubble, and the 2021 growth-stock and crypto bubble all peaked when money had poured in to the maximum after several years of a sharp run-up.
The History of Asset Rotation
It is rare for the same asset to be number one for a full 10 years.
Looking at the yearly return rankings of major U.S. asset classes: 2000s: commodities, emerging markets, and real estate ranked at the top. U.S. stocks ranked low. 2010s: U.S. large-cap growth stocks were overwhelmingly number one. Commodities and emerging markets ranked low. Early 2020s: growth stocks and crypto surged in 2020–2021 → then crashed in 2022.
There is no guarantee that "the number one of the past 10 years will be number one for the next 10 years." This is the risk of concentrating in a single asset.
There is no guarantee that past rotation will repeat in the future. This is historical data for educational purposes.
How to Counter Recency Bias
1. Check long-term data: prioritize 10-year and 20-year data over 1-year and 3-year returns. 2. Diversify: not concentrating in a specific asset reduces the harm from recency bias. 3. Regular rebalancing: the mechanical process of selling what has risen and buying what has fallen works in the opposite direction of recency bias. 4. Check the baseline return: understand "why this asset is rising now" in historical context.
よくある質問
Q. How is recency bias different from momentum investing?
Momentum investing is a strategy that deliberately exploits recency. It is based on the statistical observation that "assets that are rising tend to keep rising." Recency bias becomes a problem when you mistake this for something that "will last forever." Momentum strategies also carry large losses when a reversal comes, and they require continuous monitoring and trading.
Q. Is there a way to reduce recency bias in this calculator?
Yes. Instead of looking only at the last 5 years of data, try setting the longest possible period (10, 20, or 30 years). Comparing various starting points for the same asset lets you confirm that returns vary greatly depending on the start date.
関連ページ
📋 結果は過去のデータに基づくものです。過去のリターンは将来のリターンを保証しません。
📋 本サービスは投資アドバイスではなく、投資を理解するための教育目的で提供されています。