At the start of a new year, I like to write an investment outlook for the year ahead as well as glance back at the year that has passed.
Summary of 2023This time last year I wrote about how investment managers fall foul of recency bias. Recency bias is defined in behavioural economics as where you incorrectly believe that recent events will occur again soon. This leads to an inaccurate and subjective assessment of the probability of events occurring in the future. In the world of investing this can lead to irrational and poor investment decisions.
For example, at the start of 2021 investment banks were too pessimistic in their predictions for the year ahead, following a dismal 2020. At the start of 2022 the opposite was true with investment banks being way too optimistic about how 2022 would pan out, following the strong equity market returns of 2021.
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