Recency bias: why last year’s winner is the wrong reason to buy
Something did well last year, and now it is all anyone talks about. The returns are printed everywhere, the story sounds obvious in hindsight, and a quiet voice inside you wonders whether you are missing out by not rushing in. That pull you feel, that sense that last year’s winner is surely this year’s answer, has a name.
It is called recency bias, and it is one of the most expensive habits of the human mind. We give far too much weight to what has just happened and far too little to everything that came before. The recent past feels vivid and permanent, as though it will simply continue, while the longer history that would give it context fades quietly from view. In investing, this tendency to chase whatever shone most recently is one of the surest ways to arrive late and pay too much.
Why the recent winner misleads
The problem is that strong recent performance is not a promise; often it is closer to a warning. By the time something has risen enough to become the story everyone repeats, much of that rise has already happened, and you would be buying near the top of the excitement, not the start of it. What climbs in one stretch frequently cools in the next, and the categories that dazzled for a year have a long habit of disappointing the crowd that piled in believing the good times were a permanent feature. You are not buying the future returns you imagine. You are buying the past ones you already missed.
You are not buying the future returns you imagine; you are buying the past ones you already missed.
Investing for tomorrow, not last year
The remedy is not cleverness but structure. Build a sensible, diversified plan aligned to your goals and your comfort with risk, and let it hold steady across the noise, rather than reshuffling it each time a new winner is crowned. When you feel the pull toward whatever is hot, pause and ask a simple question: am I choosing this because it fits my plan, or only because it did well recently? Remember that no category leads forever, that past performance genuinely does not predict future results, and that markets carry real risk regardless of how a recent stretch has felt. The investors who compound quietly are usually the ones who stopped chasing the rear-view mirror and kept their eyes on the road.
What to remember
- Recency bias makes the recent past feel permanent when it rarely is.
- By the time a winner is everywhere, much of the rise has already passed.
- Choose what fits your plan, not what happened to shine last year.
In twenty years of watching investors chase the latest star, the pattern barely changes. The excitement peaks just as the opportunity thins, and the crowd arrives exactly when it should be patient. The quiet discipline of ignoring last year’s headline and staying with a plan built for your own life is unglamorous work. It is also, reliably, the work that tends to pay.
Hardik Joshi is the Founder of Shrey Wealth (ARN-255332), an AMFI-registered Mutual Fund & SIF Distributor and APMI-registered PMS Distributor (APRN-02027). Shrey Wealth is NOT a SEBI-registered Investment Adviser; views shared here are personal and for educational and awareness purposes only. Mutual fund investments are subject to market risks; read all scheme-related documents carefully. Past performance is not indicative of future results.