We live in Arizona…
So when it starts to get hot, it gets hot quickly.
And sometimes by March, you’re sweating it out in 84-degree heat, questioning why you live here.
But then you settle into the actual summer where Phoenix just managed to set a new record for over 113 straight days over 100 degrees. It’s so hot that most of us don’t bother to go outside and those who do are only sitting by the pool.
Finally last week, after a torridly hot summer, we dipped back down into the high 80s. And ya know what? It felt glorious.
I hadn’t been out on a hike in so long that it was the very first thing I did. And while out on my hike, I ran into two people I know also out enjoying the “cool” 89-degree weather.
In March, I was lamenting the 84-degree heat, but after being trapped inside for months, all of a sudden the 89-degree heat felt nice.
Isn’t that wild?
The Landmine In Your Brain
Boy, doesn’t the human mind operate with so much recency bias?
When you’re hot for 113 straight days and then you FINALLY get a slightly cooler day it feels nice.
Yet if you’re coming off beautiful 65-degree weather, then a slightly toasty 84-degree day seems awful.
It’s all recency bias!
And I’ve noticed that the stock market works this way too.
If you pay attention to the market every day…you WILL feel it. You can’t not.
When the stock market is down, the sky is falling. You feel like crap.
When the market hits all-time highs, you feel like you are on top of the world!
And the same goes for fantasy football, gambling, and anything else where recency bias comes into play.
Recency bias is a cognitive bias that occurs when we place greater importance on recent events or new information. In other words, we tend to weigh more heavily the experiences or data that we’ve encountered most recently.
So How Do You Navigate The World With This Type of Messed-up Psychology?
The answer is simple: You need perspective.
You need to zoom out.
When you’re too far into something you can’t help but get swept up by recency bias.
But when you zoom out, you see the bigger picture.
Will it make the 84-degree days in March feel better? Probably not.
But it can help you to better manage the ups and downs of the stock market.
When you’re watching the markets every day, you WILL get sucked into it. You will overly tinker. And over-tinkering leads to mistakes.
And that is why you have to constantly zoom out to see the long-term perspective.
You can also educate yourself.
The more you read on any subject, the more perspective you’ll have.
Of course, I can’t promise the markets will always go up forever in perpetuity. But as JL Collins says…
The market always recovers. Always. And, if someday it really doesn’t no investment will be safe and none of this financial stuff will matter anyway.
– The Simple Path to Wealth by JL Collins
I don’t know about you, but I believe in human ingenuity.
We’ll figure out how to solve our problems and create new value for society.
So long as there are problems to solve, you can bet that humans will be up to the task.
So forget about the daily volatility of the markets.
Forget about what the weather was like yesterday.
Find a way to enjoy today, no matter what temperature it is outside, and no matter which direction the stock market is headed.
Now go and get it!