Recency
Recent events are weighted more heavily than their frequency warrants. It is why risk feels lowest after a long calm period and highest after a decline.
MadStockAlerts Research · Updated August 28, 2026
What to take away
- Recent experience dominates the assessment of what is likely.
- Risk appetite therefore rises after good periods and falls after bad ones.
- It is the mechanism behind buying after strong performance and selling after weak.
- Extrapolating a recent trend is the same effect applied to forecasts.
- Long-horizon data is the countermeasure, and it is available.
MAD Academy Training Video · 0:46
The Last Thing Weighs the Most
Recent events dominate judgement out of all proportion, which is why strategies get abandoned right before they start working.
This lesson is part of a Stock Alerts + Tools plan.
How it operates
Judgements about likelihood are heavily influenced by how easily examples come to mind, and recent examples come to mind most easily. After a long calm period, a severe decline is difficult to imagine; immediately after one, it is difficult to imagine anything else.
Scroll the chart sideways to see all of it.
- Perceived risk
- Risk actually being taken
Where it shows up
- Fund flows: money arrives after strong performance and leaves after weak, which is the behaviour gap made concrete.
- Allocation drift: risk is added after good years, which is when the allocation is already most aggressive.
- Abandoning a method after a normal losing run, since the run is recent and the long record is not.
- Extrapolating a growth rate that has persisted for a few years into a valuation.
The first item is measurable and consistently documented. Investors in the same funds earn less than the funds do, and the gap is timing driven by recent performance.
The interaction with sample size
Recency compounds the sample size problem this library returns to repeatedly. A run of six losses is recent, vivid and consistent with a perfectly good method, and the vividness is what makes it feel like evidence.
This is also why a method is most likely to be abandoned at the point where its long-run statistics say least has changed. The recent evidence is small and salient; the long record is large and abstract.
The countermeasures
- Look at long-horizon data deliberately, since it is available and does not come to mind on its own.
- Write down what a normal losing run looks like for the method, before one occurs.
- Rebalance on a schedule, which mechanically reduces exposure after good periods.
- Review the record in aggregate rather than by recalling recent trades.
The base rate that recency displaces
Recency operates by substituting recent frequency for actual frequency. Writing the actual frequency down in advance is the countermeasure, because it is available and does not come to mind on its own.
| Question | The recency answer | The base rate |
|---|---|---|
| How often does the market fall 10 percent | Rarely, after a calm year | Roughly annually, historically |
| How often does it fall 20 percent | Never, late in a cycle | Every few years |
| How long do losing runs last | As long as the current one | The method's own statistics say |
| How often is a setup wrong | As often as recently | The recorded hit rate |
Every base rate in the right column is knowable in advance and none of them come to mind during the period they apply to. Writing them down before they are needed is the only reliable way to have them available when they are.