“The world is broken; nothing will ever be the same!”
Sound familiar?
I think we’ve all thought something like this at some point over the last year. Who can blame us? These have been strange, stressful times.
However, I find comfort in the idea that this could be Recency Bias at work, rather than the whole truth.
Recency Bias is the tendency to over-value recent data and events versus historical information. As a result, we may look at the recent past and project that trend into the future.
If we judge solely based on the last year, it’s easy to despair for the future. However, if we consider the various travails humanity has experienced, we’ll see that again and again we’ve not only survived, but thrived.
These findings can also be applied to the financial realm, in which the pandemic brought the longest bull market in history to a swift end in Feb/March 2020, after which it rapidly bounced back.
While the trigger for that drop came from left field, the decline itself wasn’t surprising. If we look further back, it’s clear that bear markets are a normal, inevitable part of every market cycle.
So next time you feel like the Four Horsemen of the Apocalypse are here to stay, try to remember that just as the bad times are inevitable – so recovery is logical.