GOATs, Recency Bias, and Investing

Tom Brady is the NFL’s “Greatest of All Time”. Everyone from sportscasters to armchair-quarterbacks are touting Brady’s stats and records and labelling him as the NFL’s greatest ever player. Let’s consider some of the stats that recommend him (as of November 2022):

  • Super Bowl wins: 7
  • Super Bowl MVP: 5
  • NFL MVP: 3
  • Most career quarterback wins: 248
  • Most career passing attempts: 11,744
  • Most career passing completions: 7,545
  • Most career passing touchdowns: 636
  • Most career passing yards: 87,325 (regular season)
  • Most pass completions in a season: 485
  • Most times sacked: 557
  • Longest touchdown pass: 99 yards

If I had a nickel for every time I heard someone talk about Tom Brady this past year I would have a whole lot of nickels! Brady is the GOAT…or is he? Is he really the best or are we biased because he is currently playing?

Where does he stack up against earlier greats? Brady has some competition from peers like Peyton Manning and Drew Brees. Looking farther back is the great Joe Montana who was considered the GOAT until a few years ago (and you will still find lists putting Montana on top!) Go back even farther and you have amazing players like Johnny Unitas, Roger Staubach, or Otto Graham.

Who is the GOAT

As partial as I am to John Elway, Tom Brady might arguably be the best; but my point is that when thinking about the “Greatest of All Time” our minds easily jump to the players we see on TV now and we are prone to forget about great players from yester-year.

The term for this tendency is “recency bias.” This is the tendency to overweight the importance of recent events or information, while undervaluing historical, objective events or trends. GOAT lists aside, we do this in other areas of life too. For example, when I hear news about a shark attack, I am more wary when getting in the water even though statistically the probability of getting bitten is very low.

Recency Bias and Investing

When it comes to finances, recency bias can also affect investor behavior and decisions. Investors tend to think whatever is happening now in the markets or economy will continue. Let’s consider a few examples:

  • Prior to the recent market downturn, the stock market had been increasing steadily for years. Many investors felt this increase could go on indefinitely. This is irrational as historically markets are volatile and go up and down.
  • On the flip-side, now everything is doom and gloom with many investors thinking the market will keep going down for years to come. This is also irrational.
  • DIY investors often make trading decisions based on recent news. A particular stock went up so everyone wants to buy it assuming it will go up again. These types of decision are based on news and crowd dynamics not on the fundamentals.

Investing involves our emotions which can play an out-sized role in our decision making. Rather than considering objective facts and historical trends we are swayed by the here-and-now.

Some of our recent market commentaries have discussed recency bias and how it relates to investor sentiment. As an investment manager, we want to make our decisions objectively, based on historical data, comprehensive analysis, and reliable information.

This is one of the many reasons to work with a financial advisor. Having an objective third-party managing your investments is one of the best ways to avoid making an emotionally biased financial decision.

Go ahead and let your emotions rule your GOAT choices but find a trusted partner to help with your investing. If you don’t have a financial advisor helping you plan and invest for the future, we’d love to help you…even if you’re a Tom Brady fan!

 

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