Loading ...While indulging in a most delicious barbecued steak washed down by a lovely South African red a couple weeks ago a friend was telling me about a recent seminar he attended. As a senior executive at a Swiss private bank he regularly attends these things.
The topic. “How to invest in a volatile market.”
The suggestion: Buy USD, CHF and JPY.
The kid (he was in his 20’s) who was delivering this presentation to a room full of bankers proved his point by showing his analysis…going all the way back a whopping 10 years which lends itself particularly well to recency bias.
The reasons that these three currencies have rallied in the past are for a number of different reasons. All different from each other. It’s best therefore to understand what those reasons are. Simply looking in the rearview mirror and saying..oh “well it happened last time” may work out…but then again…maybe not.
How It’s Dangerous to Investors
Now let me show how dangerous recency bias really is. You’re gonna like this.
At the beginning of every decade there is a prevailing narrative that amounts to looking in the rearview mirror in order to determine the future. Recency bias.
Remember the beginning of the 90’s?
Every man, the taxi driver and even that cute intern with the lazy eye was long Japan. You HAD to be in the Japanese “economic miracle”. It was like duh of course!