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 2022 - one of the toughest years on recordAfter a number of years of writing these investment outlooks it has become apparent that 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.
This time last year I wrote how investment banks were too pessimistic in their predictions for 2021, following a dismal 2020 which was blighted by the covid pandemic. Fast-forward to 2022 and the opposite is true, with investment banks way too optimistic about how 2022 would pan out, following the strong equity market market returns of 2021.
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