A jacket forgotten at Red Rocks because the last few concerts didn't need one. That's recency bias: overweighting recent wins and ignoring long-term patterns. In investing, a streak of big gains can trick you into repeating the same bets, mistaking luck or market timing for skill.
I recently went to a show at Red Rocks and I consciously made the choice not to bring my jacket. Previously, I had always said anytime I go to a show there, you never know what the weather is going to be like. I'm always going to bring a jacket. But then after 2 or 3 recent concerts, I brought a jacket and I held it the whole time and I almost lost it. I almost forgot about it. And I was like, maybe that was a little overeager. I don't need a jacket every time. And the most recent show I went to, I chose to leave my jacket at home and I was freezing for the entire show. That's an illustration of recency bias, meaning I've been going to shows there for a long time. I know the weather can change. And I abandoned my own principles because the last couple I hadn't needed the jacket and then I left it at home when I actually did need it. The same thing can happen when we think about investments. If we have 2 or 3 big wins in a row, we can get overzealous and start trying to replicate that deal over and over when it may be market conditions or luck that's contributing to those factors rather than good decision-making.
