The availability bias (see appendix), described by Amos Tversky and Daniel Kahneman in 1973, explains that we tend to overvalue recent or easily remembered events, confusing their ease of recall with their actual probability.
To avoid technical jargon and anglicisms, I call it the recency bias. Basically, we think that what happened recently is the most likely thing to happen again. In investing, this bias can lead us to overweight what has worked recently and forget that in other periods this didn’t work, and therefore what worked in recent decades and what might work today or tomorrow may be different.
We often invest with a retrospective eye: what worked in the recent past seems like the best bet for the future. But markets don’t have memories, and you do. Precisely for this reason, your experience can be your worst enemy if you don’t put it into context.
Many of the most repeated mantras of recent decades may be in doubt right now.
Let’s review it.
Ciclos que se olvidan o los mitos que caen
1. “Cash is trash” or “Cash is king”?
English is full of financial sayings. In the last decade, the adage “Cash is trash” has become prevalent.
For years, cash offered no real returns. But now, with interest rates above 4% in the US and 2.25% in Europe, money market funds are beating equities and inflation by 2025. In 2022 and 2025 (for now), cash isn’t just playing defense, it’s playing offense.
For others, “Cash is king” prevails. They want to always have a portion of their assets in cash (up to 10%, for example) to take advantage of opportunities that may arise in the markets.
With positive interest rates, cash can play a role in at least an emergency fund.
2. The US always wins
The last two decades have been dominated by the United States, with the S&P 500 (or the Nasdaq, see below) as the unbeatable leader. And this is no anomaly: from 1971 to 1990, international markets consistently outperformed the United States, with a weak dollar as their ally.
Sin ir más lejos la guerra de aranceles (o un potencial cambio de ciclo ha hecho que el índice MSCI ACWI ex USA lo supera por más de 14 puntos. ¿Puede que Europa también esté despertando?
Sin discutir la importancia de los mercados estadounidenses, invertir sólo en el S&P500 no es una buena idea. Es mejor una estrategia de diversificación mundial.
3. El growth siempre gana al value o ¿es al revés Mr. Buffett?
Since 2008, growth (a bias associated with tech companies) has overshadowed value. At times, the Nasdaq has emerged as the index to watch.
But in 2025, stocks like Berkshire Hathaway (Buffett’s company, a strong advocate of value investing) will outperform the Nasdaq.
Historically, value stocks have offered greater resilience in turbulent environments. According to MSCI data since 1974, the MSCI World Value Index has outperformed the MSCI World Growth Index by one percentage point and the MSCI World Index by 0.4%.
In recent years, as seen in the attached table and discussed in our 2024 report, growth stocks have outperformed value stocks.
At this point, the decision is simple: thanks to indexing, we are not forced to rely on any bias, unless we have a particular interest or vision.
4. Could the dollar’s strength be a mirage?
In recent years, most investors haven’t questioned the strength of the dollar. But if it devalues, dollar-denominated assets, even if they gain in profitability, lose some of their appreciation in other currencies. Currencies, including the dollar, are subject to cycles that are very difficult to predict. The “currency effect” can be a silent ally or the complete opposite.
Thinking the dollar is impregnable could be a mistake. The recent tariff war has displayed unusual behavior, calling into question its role as a reserve currency and that of Treasury bonds as a safe haven asset.
A diversified global portfolio will undoubtedly have high potential exposure to the dollar due to the weight of US equity markets in the world (around 65%). Some advocate not hedging, others argue the opposite. Some analysts argue that the dollar shows a long-term tendency to depreciate against the euro (see chart above).
The Euro/Dollar exchange rate has experienced notable fluctuations, from a high of 1.57 in July 2008 to a low of 0.98 in September 2022, with a recent recovery to $1.15 per euro in April 2024. Our limited memory may make it difficult to recall the magnitude of these changes.
5. Equities always outperform bonds
Jdemonstrates that in the long term, equities are the only asset guaranteed to outperform inflation.
During the years of low interest rates, bonds were practically ignored. But now, with yields above 3% (or 4% in dollars), bonds are performing better (at least temporarily) than the stock market, for example, in 2025. Furthermore, they offer lower volatility and greater visibility.
In any case, the name “fixed income” should not confuse us. The value of fixed income also fluctuates inversely with interest rates and is subject, as we saw in the previous point, to crises of confidence.
Without a doubt, fixed income is now a more attractive asset than in the recent past.
6. Gold shines… but it also fades
Gold rises during crises, and that’s what many remember.
It was the asset that helped some achieve positive returns during the Great Financial Crisis; in fact, it was one of the few that actually rose.
But between 1980 and 2008, it spent decades without surpassing its peak. At the time of writing this post, gold is trading at all-time highs, but history tells us it’s not a permanent winner. It’s only useful if you understand its one-time or diversifying role.
Buffett, for example, has historically been quite critical of gold as an investment. His opinion boils down to the fact that gold “doesn’t produce anything”—it doesn’t generate income, it doesn’t create value, it just sits there.
Yet, gold is currently at all-time highs.
7. Real estate: the perfect asset?
In Spain, real estate persists as the star asset due to its tangibility, familiarity, and easy leverage through mortgages. However, its illiquidity and sensitivity to economic cycles pose significant risks. Following the 2008 global financial crisis, several real estate markets experienced prolonged periods of stagnation or real declines (adjusted for inflation).
In this case, it seems that the immediate bias isn’t as strong. Like any asset, the real estate sector doesn’t guarantee constant returns. As we can see in the chart above, the average home price took more than 17 years to surpass the 2007 highs in Spain after falling by as much as -30% in 2016.
Real estate-related assets, if considered, should be part of a diversified strategy, not the only one.
8. Bitcoin: New asset or just a bubble?
Some young people have become rich, and others have lost their savings with Bitcoin (or other cryptocurrencies).
Many consider Bitcoin and cryptocurrencies to be a new, essential asset class. But its history is still short and extremely volatile. In just 15 years, it has experienced multiple bubbles and crashes.
Will it be a consolidated asset in the future or a speculative fad? It’s too early to say for sure. For now, its behavior has been more like that of an extremely risky asset than a stable, highly technology-linked safe haven… but this may also be changing. In recent days, Bitcoin has risen while the Nasdaq fell. Is the vision that Bitcoin is the new digital gold coming true? It’s too early to say.
Ark recently estimated that Bitcoin could reach a price range of $300,000 to $1,500,000 (with a very difficult-to-beat APR of 21% to 58%) by 2030.
On the contrary, Buffett has directly called it “rat poison squared.” His main criticism is that Bitcoin, like gold, produces nothing: it generates no income, no profits, no dividends. It only sustains itself on the hope that someone will buy it in the future at a higher price.
If it’s considered an asset, its high volatility should limit its weight (limit) in a portfolio.
Your memory can be your trap
Only time will tell.
In fact, this is somewhat the point of this article: the time frame over which we analyze different assets can radically change the conclusion.
Each generation invests based on its experiences: if you lived through 2008, you’re wary of the stock market. If you started investing after the Great Financial Crisis, you’ll think technology and growth are the places to invest, while those who lived through the tech bubble of 2000 are terrified of it. If you started in 2020, you believe everything rebounds quickly. If you bought an apartment in the 1980s, you’ll tend to think the real estate sector always rises.
But it’s very likely that what you’ve experienced is only a fraction of the market’s history. Or if you’re a few years old, you’ll be influenced by only a fraction of that history, the most recent or the one that marked an important period in your life.
There are long periods in which an investment rule seems to be clearly verified, only to be subsequently refuted in different cycles.
The immediacy bias can lead you to overweight the US, growth, stocks, or the dollar, and underweight bonds, value, or emerging markets… or just the opposite.
The solution is very simple: it’s called diversification. And it’s free.
Diversify across asset classes, geographies, styles, and currencies. Because the market changes more than our memory allows us to accept.
And you have to do this based on your goals and your horizons. There isn’t just one solution, asset, or combination of assets; rather, it’s the one that’s most appropriate for each of us, depending on our goals, horizons, and risk perception.
Don’t let your recent experiences, your short memory, and the immediacy bias betray you: expand your horizons.
Appendix: Availability bias and its pitfalls in decision-making
The Availability Heuristic, described by Amos Tversky and Daniel Kahneman in 1973, explains that people assess the probability of an event based on how easy it is to recall recent or impactful examples, not on a rational analysis of data.
When an experience is fresh in our minds or has received a lot of media coverage, we tend to overestimate it, without realizing that it doesn’t necessarily represent reality.
Examples of availability bias in daily life:
- Plane Crashes:
- After a highly publicized plane crash, many people tend to think flying is dangerous, even though statistically it is one of the safest modes of transportation.
- Natural Disasters:
- After a major earthquake or hurricane, the perception of the risk of natural disasters in that area skyrockets, even though historical data does not indicate an actual increase in the probability.
- Crime:
- If a crime is widely reported in the news, people may overestimate the overall crime rate in their city or country, even if it is actually decreasing.
- If a crime is widely reported in the news, people may overestimate the overall crime rate in their city or country, even if it is actually decreasing.
Examples of availability bias in investment:
- Tech Bubbles (1999-2000):
- During the dot-com boom, the success of some startups was so visible that many investors assumed all tech companies would prosper.
- 2008 Financial Crash:
- Following the bankruptcy of Lehman Brothers and the market crash, many investors overestimated the risk of further declines and avoided equities for years, missing out on much of the recovery.
- Bitcoin and Cryptocurrencies:
- The recent memory of Bitcoin’s massive surges leads many to believe that investing in cryptocurrencies guarantees quick returns, ignoring its extreme historical volatility.
- Real Estate Market in Spain:
- The continuous rise in housing prices in the 2000s left the collective belief that “bricks and mortar never go down,” something disproved by the severe real estate crisis after 2008.
- The continuous rise in housing prices in the 2000s left the collective belief that “bricks and mortar never go down,” something disproved by the severe real estate crisis after 2008.
Why is this bias dangerous?
Because it causes us to extrapolate the recent past into the future, guiding us more by emotions than by objective analysis. This bias can generate euphoria during market peaks or panic during market declines.
How to protect yourself?
The key is to recognize bias, analyze historical data from a distance, and diversify so as not to rely solely on what we remember most or see in the headlines.
Key reference:
- Tversky, A., & Kahneman, D. (1973). Availability: A heuristic for judging frequency and probability. Cognitive Psychology, 5(2),páginas: 207-232
