Recency bias
A cognitive bias where recent events feel more representative of the future than they actually are. After a crash, every bear market headline feels like the start of a longer collapse; after a rally, the gains feel sustainable indefinitely. Recency bias drives investors to sell at lows ("this will keep falling") and buy at highs ("this will keep rising"). It's why a written, long-horizon plan beats reacting to the news.
In March 2009, investors who extrapolated the recent freefall expected the S&P 500 to keep dropping. It bottomed that month and roughly tripled over the next decade.
Trade-offs
Risk
The chance that an investment loses value, and how much it could lose.
Read →Volatility
How wildly an investment's price moves up and down. High volatility = bigger swings.
Read →Diversification
Spreading money across many different things so no single one can sink you.
Read →Bull & bear market
Long stretches of rising prices (bull) or falling prices (bear). Both end, eventually.
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