Recency Bias Erodes Discipline and Destroys Investor Returns: Reconsidering Reinsurance

December 9, 2019

Among the errors discussed in my book “Investment Mistakes Even Smart Investors Make and How to Avoid Them” is one called “recency.” Recency bias is the tendency to overweight recent events/trends and ignore long-term evidence. This leads investors to buy after periods of strong performance—when valuations are higher and expected returns are now lower—and sell after periods of poor performance—when prices are lower and expected returns are now higher. Buying high and selling low is not exactly a prescription for successful investing. Yet, it is the way many individuals invest. What disciplined investors do is the opposite—rebalance to maintain their well-thought-out allocation to risk assets. Read More...

Turning a Saver Into a Spender

December 5, 2019

Old habits are hard to break. You may have been raised in a household where your family needed every penny to make ends meet. Perhaps you started working at a young age to help pay the bills. The value of hard work becomes ingrained, and you learn not to spend money frivolously. Read More...