Availability Bias

The issue:

When information is easy to recall, usually due to how new the information is or how emotional the experience was, we tend to rely more heavily on it than information that is more difficult to remember.availability

For example, investors often think that their recent investment experience will continue, either continuing to rise or continuing to fall and when capital markets become volatile, investors have a natural predisposition to believe that their overall performance has been poor in general, when their long-term performance may actually be quite good.

The solution:

To guard against making judgments based on recent or emotional market swings, a simple technique is to refer to long-term empirical data on your portfolio rather. Set up a spreadsheet that tracks your investment performance, net of your contributions and withdrawals, then compare your performance against recent high market values. This will help guard against normal emotional responses biased by the availability to recall recent and emotional events, such as market volatility.

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CIBC Wood Gundy is a division of CIBC World Markets Inc., a subsidiary of CIBC and a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada.