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. It leads to buying high after a runup and selling low after a slump, exactly backwards. Markets are mean-reverting often enough that 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.

Recency bias is taught hands-on in Stage 2 — Why Investing Matters (And When It Doesn't).

See the lesson →

Related terms

Asset classA broad category of investment with similar behavior. Stocks, bonds, cash, real estate, commodities.Behavior gapThe difference between a fund's reported return and what its investors actually earned — usually worse.Dollar-cost averagingInvesting a fixed amount on a fixed schedule, regardless of market level.FOMO buyingFear of missing out — piling into something after it has already run, because everyone else seems to be winning.
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