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August
26
2021

Don’t Let Recency Bias Distort Your Investment Decisions
Kris Sayce

Kris’ note: Before we get into today’s Dispatch, a quick reminder about a special event that’s due to kick off around four hours from now (at 8 p.m. ET). It involves a dear friend of Casey Research, Jeff Brown.

As far as we’re concerned, Jeff is hands down the best technologist and tech investing expert we’ve come across in our 25-plus years in the market. And tonight, Jeff is livestreaming details about his latest project.

According to Jeff, he will reveal a new way of investing in the booming cryptocurrency market, including a unique way of identifying the next batch of “mega crypto winners.”

To attend Jeff’s Click for Crypto event, go right here. Your spot will be automatically reserved.

In yesterday’s Dispatch, we warned about the dangers of being a “perma-bear.”

We explained how it causes investors to miss the market’s biggest moves.

And not just once… but year after year after year.

Well, being a “perma-bear” isn’t the only danger causing investors to miss out.

There’s another threat…

It’s the factor that causes the problems that worry the “perma-bears” every day.

But this one can harm any investor.

We’ll explain more below…

If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.

At the Dispatch we have two goals:

1. To introduce you to the most important investing themes of the day, and

2. To show you how to profit from them.

We do this by showcasing ideas from our in-house investing experts: Dave Forest and Nick Giambruno. And from the founder of our business, Doug Casey.

In today’s Dispatch, we continue our theme of helping you avoid being frightened out of investing…

The Danger of “Recency Bias”

When you watch or read the news today, you’d think that today’s events are a world first, and that it’s the most important thing that has ever happened. This phenomenon is known as “recency bias.”

You’d think that this is the only time governments have spent more money than they can afford to spend – mostly funding welfare and wars.

You’d think that this is the only time central banks have manipulated interest rates to artificially low levels.

You’d think that this is the only time that banks have loaned (and customers have borrowed) more than they should.

The reality is that this isn’t the first time any of this has happened. Much of what’s happening today is similar to events that have happened throughout history.

And yet, over-emphasizing the importance or impact of events today can cause investors to frighten themselves out of making the most of the markets.

This is why investors should always look to the past to see how events have unfolded.

Understanding history is always important.

Not only does it help you understand the future, but it also helps you understand what’s happening right now.

The trouble is, when many folks look at history, they only look at the bad things. They often forget about the positives.

They forget that economies, markets, and events are cyclical.

We look for these cycles and the distortions they cause.

Then we interpret them to help regular investors take advantage.

Here’s an example…

Can You Learn to Invest This Way?

The past year has felt as though it must be the most extraordinary period in history.

But in truth, it probably doesn’t even rank in the top 50.

This is that problem of “recency bias.” People tend to place a higher importance on events that are happening today than on events that happened in the past.

That’s understandable. When you live through something, it’s bound to feel important. But it’s that “recency bias” that causes investors to make mistakes.

It causes them to miss opportunities. Take the markets in June of last year. Despite the quick rebound from the March low, many investors didn’t believe that rebound would last.

They put too much focus on the news events swirling around them. And because most of the news was negative, and because they were living through it, they couldn’t see how it was actually the best time to invest in years.

And that’s what one of our colleagues did. Investing expert Dave Forest issued a buy recommendation on a relatively small company that few investors had ever heard about.

That company was Albemarle Corporation (ALB). It’s America’s only lithium miner. Dave figured (rightly) that the ongoing growth of electric vehicles, and the strategic nature of lithium, would lead to increased demand and increased interest in the stock.

Yesterday, just over a year later, Dave issued a sell recommendation (Strategic Investor subscribers can catch up here). He told his readers to cash out the remaining part of the position for a 185% gain (he recommended selling half a few months ago when it doubled). That’s pretty good in less than 14 months.

The point is, Dave took a sober and methodical approach to the idea. He didn’t allow recency bias or mainstream hysteria to push him away from what he knew was a great idea.

Fourteen months later, it has paid off handsomely for his subscribers.

The bottom line is that it’s easy to get caught up in current events… to allow scary news stories to stop you from making sound investment decisions.

It’s a big problem that investors face. But if you want the chance to invest in the best ideas at the best time, it’s a problem any investor needs to learn to manage.

The best way to do that is to look at history and put current events in context. Try to remember that when you read the next big scary story. Treat it as an opportunity, rather than a threat.

Can you do that? Give it a try. Your investment portfolio will be the better for it.

Cheers,

Kris Sayce
Editor, Casey Daily Dispatch

P.S. Dave has a knack for being cool-headed and picking investments at the right time – just before they explode.

Check out his best investments in warrants – an asset class that regularly nets triple-digit wins or higher for his readers – right here.

 

Kris Sayce’s career started in the financial markets more than 25 years ago in London, where he specialized in small-cap stocks listed on London’s Alternative Investment Market (AIM).

He discovered financial newsletters in 2005 and headed up several, including Daily Reckoning, Revolutionary Tech Investor, and New Frontier Investor.

His biggest calls include telling investors to buy tech stocks in the early stages of the boom in 2013, and correctly predicting the Chinese stock market boom in 2014/2015.

Now, Kris writes the Casey Daily Dispatch, showing investors how to grow their wealth during the next stage of the economic cycle.

 

www.caseyresearch.com