Investing term
What is Recency bias?
Treating the recent past as if it will continue, leading you to chase whatever just performed well.
Recency bias is treating the recent past as if it will simply continue — chasing whatever has just performed well and fleeing whatever just fell. The mind weights vivid, recent events far more heavily than distant ones, so the last two years feel like the permanent state of the world.
In markets this leads to buying high after a run-up and selling low after a slump, exactly backwards. It makes a hot sector look like a sure thing right as its run is ending, and a battered one look hopeless right as it's about to turn. Because markets mean-revert often enough, the recent trend is one of the poorer guides to what comes next.
The recent past feels permanent, so you extrapolate the last run-up forward. Markets often mean-revert instead, so the recent trend is a poor guide to the next one.
For example
A sector soars for two years so you pile in, just as its run is ending — recency bias mistaking the recent past for the future.
Learn it by doing
That's Recency bias in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 2, Why Investing Matters (And When It Doesn't)).
Try the free lesson →Why it matters to you
Recency bias matters because it quietly shapes nearly every emotional investing mistake — performance-chasing, panic-selling, and abandoning a plan after a bad stretch. It's why last year's top-performing fund attracts the most new money right before it cools. Anchoring on long-run history rather than the recent past, and rebalancing on a schedule, are the practical counters to an instinct that reliably points the wrong way.
⚠ Chasing last year's best performer
The fund or sector at the top of the recent leaderboard is the most tempting to buy — and often the worst-timed purchase, because strong runs tend to cool and leadership rotates. Picking investments by recent performance is recency bias in action; a durable plan and periodic rebalancing beat chasing the latest winner.