Handshakes, Peloton, and Stocks

The Covid pandemic has definitely altered our lives. We are just not sure in which way and for how long. Early on, for instance, handshakes were thought to be a thing of the past. But handshakes appear to be a custom as resilient as the virus.

 The anticipated demise of handshakes can be explained by a concept known as "recency bias," which is our propensity to expect that recent events will continue into the future. As Investopedia puts it, recency bias is "the tendency for people to overweight new information or events without considering the objective probabilities of those events in the long run.

Think of the movie "Jaws." After watching it, hopping into the ocean becomes a scary proposition even though the odds of a shark attack have not been altered by viewing the film.

In the investment world, the success of certain companies during the pandemic did not always persist. Demand for Peloton bicycles skyrocketed as people sought an alternative to crowded gyms. But trends change and Peloton's business has declined dramatically. Peloton's stock peaked at $160 per share; it is now around $7.

The downturn in the stock market is not fated to persist, although it may continue for a while. In the moment, there exists an overwhelming impulse to take some action. Yet, as stated in Investopedia, "the best way to combat recency bias is to have an investment strategy and stick with it, regardless of short-term market volatility." This strategy can help you avoid selling in bear markets and buying in bull markets.

Please let me know if you wish to discuss this further.

Words of Wisdom

How could I forget to mention, the bicycle is a good invention.
-- Anthony Kiedes/Red Hot Chili Peppers from "Bicycle Song"