Mumbai Rains, Airplane Crashes, and Stock Market Crashes: The Destructive Power of Recency Bias
Explore how recency bias can lead to poor decision-making in various aspects of life, from natural disasters to investing. Learn how to overcome this bias and build wealth.
Recency BiasInvestingMarket CyclesBehaviorWealth CreationReal Estate MumbaiAug 30, 2025
In investing, the same trap appears: investors treat the most recent event, no matter how rare, as if it were the destiny. This is called recency bias—a subtle yet destructive force in decision-making.
What Is Recency Bias?
Recency bias is the tendency to believe that whatever just happened will keep happening. We overweight the latest event while ignoring long-term patterns. Ironically, it’s often the rare, exceptional events—not the recurring ones—that dominate our judgment.
Everyday Examples of Recency Bias
Take the tragic Air India crash earlier this year. Only one passenger, seated at 11A, survived. Suddenly, the 11A seat of the aircraft was seen as the “safest” one, with demand soaring—despite the statistical absurdity.
Or consider August 19, 2025, when Mumbai and nearby districts recorded record-breaking rainfall. Though the skies cleared the next day, many skipped work, fearing yet another deluge was on the cards.
Both are rare events. Yet they shaped behavior far more than years of safe flights or thousands of dry monsoons.
Markets: Where Fear Meets Greed
In markets, recency bias shows up daily.
After a sharp fall, investors fear an endless crash.
After a rally, they expect stocks to “double every month.”
This bias fuels both panic and euphoria, blinding investors to the cyclical reality of markets.
History offers countless reminders: the IT bubble of 2000, the Global Financial Crisis (GFC) of 2008, and the Covid-19 crash of 2020. Each triggered mass panic selling. Each was followed not just by recovery, but by new highs. Those who gave in to recency bias locked in losses at the bottom—missing the wealth created in the recovery.
The Value Destruction Effect
When investors let short-term noise drive decisions, wealth is quietly destroyed:
Selling quality stocks in fear.
Overpaying for momentum during euphoria.
Missing the compounding power of staying invested.
The problem is rarely with the poor businesses. It is poor behavior.
The Value Creation Effect
Investors who resist recency bias gain a powerful edge. They:
Buy when panic grips the market.
Hold through temporary volatility.
Anchor on fundamentals, not headlines.
As the saying goes, “Markets often bottom on bad news.”
For example, when US tariffs were announced in April this year, Nifty hit its low for 2025. It hasn’t broken that level since—reminding us that panic often coincides with opportunity.
Practical Ways to Overcome Recency Bias
Look at 10-year charts, not 10-day moves.
Base decisions on fundamentals and valuations, not noise.
Use a checklist-driven process to avoid impulsive reactions.
Always separate signal from noise.
Conclusion
Markets will always swing between disaster and euphoria—but neither is permanent. Wealth is built not by reacting to the latest headline but by resisting the belief that the recent past predicts the future.
Recency bias is natural, but it blinds us to the bigger picture. Markets move in cycles, not straight lines. One crash—or one rally—never defines the long term.
In investing, the greatest edge is not access to more information, but the ability to stay rational when others cannot.
Happy Investing!
Frequently Asked Questions
What is recency bias in investing?
Recency bias is the tendency to believe that recent events will continue to happen, leading investors to overweight the latest information and ignore long-term patterns.
How does recency bias affect investor behavior?
Recency bias can lead to panic selling during market downturns and overbuying during rallies, often resulting in poor investment decisions and wealth destruction.
What are some practical ways to overcome recency bias?
To overcome recency bias, investors can look at long-term charts, base decisions on fundamentals, use a checklist-driven process, and separate signal from noise.
Can you provide an example of recency bias in the stock market?
During the 2008 Global Financial Crisis, many investors sold their stocks in panic, locking in losses. However, those who stayed invested saw significant gains as the market recovered and reached new highs.
Why is it important to resist recency bias in investing?
Resisting recency bias helps investors make rational decisions, avoid emotional reactions, and capitalize on market opportunities, ultimately building long-term wealth.
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