YOUR MONEY: 5 IDEAS FOR AVOIDING AN OVEREMPHASIS ON SHORT-TERM RESULTS

Recency bias is the tendency to place too much weight on the latest performance trends while giving short shrift to other factors, such as fundamentals, valuation, or long-term market averages.

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Market news, by definition, focuses on recent events rather than long-term trends. As a result, recent events are top of mind, easier to remember, and often play an outsize role in investment decision-making.

But there are steps investors can take to guard against these tendencies:

BE A STUDENT OF LONG-TERM MARKET HISTORY.

When I'm thinking about asset-class performance, I like to look at performance over as long a span as possible. The IA SBBI indexes are my go-to source for major asset-class statistics going back to 1926. The academic trio of Elroy Dimson, Paul Marsh, and Mike Staunton have compiled additional data going back to 1901 on about 20 different markets globally. For valuation statistics, Robert Shiller has published data on cyclically adjusted P/Es going back to 1871.

REMIND YOURSELF THAT MARKET TRENDS ARE CYCLICAL