Recency bias has been clouding our collective judgements for years and years, and it happens all the time with respect to the financial markets. For longer-term strategies, such as my weekly risk signals, looking exclusively at short-term performance can distort its perceived effectiveness. There are plenty of examples that show us how a short-term and long-term viewpoint can paint very different pictures.
Back in July, I wrote about how a Biden win in the November election could be incredibly bullish for emerging markets equities. I have been bullish on emerging markets for a little while now, regardless of who’s sitting in the Oval Office. The idea of a President Biden could be the trigger that finally sets the wheels in motion.
This presidential election has highlighted a topic that’s been part of both the economic and political narrative for a long time - the notion of probability vs. certainty. A lot of people make judgements or base decisions on ultra-small sample sizes and underestimate the probability of severely negative outcomes - behaviors that can severely impact investment returns.