Recency bias is our tendency to put too much emphasis upon the recent past to the exclusion of the full data set and to extrapolate recent events into the future indefinitely. Professionals are no less prone to its effects as anyone else. As reported by Bespoke, Bloomberg surveys market strategists on a weekly basis and asks for their recommended portfolio weightings of stocks, bonds and cash. The peak recommended stock weighting came just after the peak of the internet bubble in early 2001 while the lowest recommended weighting came just after the lows of the financial crisis. Obviously, following that advice would have been a big mistake and had an investor sold stocks at the peak stock weighting and bought at the rock-bottom weighting – doing the opposite of what the experts said – s/he would have done exceptionally well.
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