There’s a particular kind of investment decision that rarely feels reckless in the moment.

A part of the market has had an exceptional run. The companies are strong. The narrative makes sense. Every time you open your account, those positions seem to be doing exactly what you hoped they would.

So you add more.

That doesn’t necessarily feel like chasing returns. It can feel prudent. Why put new money into investments that have lagged when the winners seem to be proving themselves month after month?

The problem is that your brain may be answering a different question than the one your portfolio needs you to answer.

Instead of asking, What mix of investments gives me the appropriate amount of risk for where I’m trying to go? you begin asking, What’s been working lately?

That’s where recency bias can quietly take control of a portfolio.

And for successful investors, particularly technology executives whose careers, compensation, and accumulated wealth may already be connected to the same companies or sector, the bigger risk isn’t simply choosing the wrong investment next.

It’s allowing yesterday’s returns to determine how much risk you take tomorrow.

What Just Happened Feels Like What Happens Next

One of the central problems in investing is that our expectations aren’t formed in a vacuum.

What we’ve recently experienced matters.

Robin Greenwood and Andrei Shleifer examined six different measures of investor expectations covering nearly five decades. They found that expectations for future stock returns were strongly tied to past market returns and to how high the market had already climbed.

In plain English, after stocks performed well, investors tended to expect more of the same.

But there was another important finding: those expectations were strongly negatively related to the returns the models actually projected going forward. The periods that left investors feeling more and more optimistic weren’t necessarily the periods when future returns looked attractive.

A strong return is evidence of what’s happened.

It’s not evidence of what must happen next.

Research by Ulrike Malmendier and Stefan Nagel adds another piece of the puzzle. Studying household investing with Survey of Consumer Finances data from 1960 through 2007, they found that people’s own experiences with stock and bond returns shaped how much risk they were willing to take and how they allocated their portfolios. More recent experiences carried greater weight.

Our memories, in other words, can become inputs into our portfolios.

And the freshest memories can become some of the most influential.

The Return That Convinced You Is the Return You Already Missed

This tendency shows up in what investors actually do with their money.

Erik Sirri and Peter Tufano studied money flowing into and out of equity mutual funds and found that investors based their buying decisions heavily on past performance. The relationship was particularly strong among the best-performing funds: exceptional prior performance pulled in a disproportionate share of new money.

That makes intuitive sense.

The investment with the best story is often the investment whose performance has already supplied the evidence for that story.

None of this means that last year’s winner must become next year’s loser.

A technology company can have an extraordinary year and keep performing well. An expensive asset can become more expensive. Market leadership can last much longer than investors expect.

That’s why the lesson isn’t to bet against whatever has recently performed well.

The lesson is simpler:

The return that convinced you to buy is a return that’s already occurred.

Your decision today needs to be justified by what the investment contributes to your portfolio from this point forward.

How Concentration Actually Shows Up

This issue is usually more subtle in practice than an investor deliberately deciding to make a giant bet on last year’s winner.

In one recent planning engagement, we worked with an executive whose compensation included salary, bonus, and recurring restricted stock units.

Those RSUs were an important part of the family’s wealth-building engine. At the same time, the taxable portfolio was being built to serve an entirely different purpose: helping create enough financial flexibility for the executive to eventually step away from a high-paying career and move toward work optionality.

That distinction mattered.

Each time another block of RSUs vested, there were effectively two choices.

The first was passive: simply allow the employer shares to accumulate.

The second was deliberate: treat the vest as a new capital-allocation decision and ask where those dollars belonged given the family’s overall portfolio, future spending needs, and risk capacity.

We chose the second approach.

The planning process called for vested equity to help fund a diversified taxable portfolio rather than allowing employer stock exposure to compound indefinitely by default. That taxable portfolio was spread across multiple asset classes and placed on a quarterly rebalancing schedule.

The important part wasn’t predicting whether the employer’s stock would outperform.

We didn’t need to.

The issue was that the client’s salary, future compensation, and a growing portion of financial wealth could otherwise become increasingly dependent on the same company.

And a position can become concentrated without the investor ever consciously deciding, I want more concentration.

Imagine that a $500,000 employer-stock position rises to $750,000.

Nothing was purchased.

No investment decision was made.

But the risk exposure changed materially.

Then another RSU grant vests.

Keeping those shares may feel innocuous because the stock has performed well, and because familiarity with the company can make the investment feel easier to understand than something outside the investor’s immediate experience.

Another vest arrives six months later.

Then another.

Over time, what began as compensation can quietly become an investment thesis.

That’s the practical danger of recency bias for investors with equity compensation. The bias doesn’t always tell you to go out and buy the hottest stock.

Sometimes it simply tells you there’s no reason to disturb what’s already been working.

Success Can Change the Portfolio Without Your Permission

Now extend that problem across the rest of a high-income household’s balance sheet.

The executive owns employer shares.

The 401(k) contains a large-cap U.S. index.

The taxable account owns another broad-market strategy.

Perhaps there are additional technology holdings accumulated over the years.

Viewed separately, none of those investments may appear particularly alarming.

Viewed together, however, they may represent substantially more exposure to the same companies, sector, and economic forces than the investor realizes.

This is particularly important for technology professionals.

Your human capital may already depend on the technology industry.

Your bonus may depend on company performance.

Your future RSU value depends on the employer’s stock.

Your existing shares may represent a substantial portion of your financial capital.

And broad-market indexes can add further exposure to some of the same companies that have already driven your wealth higher.

The question, then, isn’t simply, Is this a good company?

It may be an exceptional company.

The better portfolio question is:

How much of my financial future should depend on it?

Lisa Meulbroek’s research into company stock held by employees illustrates the economic problem created by combining employment exposure with concentrated ownership of employer shares. Even when an employee believes strongly in the company, concentrated employer stock exposes the household to risks that could otherwise be diversified.

That distinction matters because diversification isn’t a judgment about whether your company will succeed.

It’s a judgment about how much of your family’s future should depend on being right about any single outcome.

Why Portfolio Discipline Sometimes Feels Wrong

This is where a disciplined investment process earns its keep.

You establish what role each asset is supposed to play.

You decide how much concentration you’re willing to accept.

You determine an appropriate allocation based on the return you need, the risk you can afford to take, your liquidity requirements, taxes, time horizon, and the goals the portfolio ultimately needs to fund.

Then you periodically compare the portfolio you actually own with the portfolio you intended to own.

That last step matters because successful investments don’t remain politely inside their original allocations.

They grow.

For an investor receiving equity compensation, there’s another layer: new shares may keep arriving even after an existing position has already become large.

That means maintaining the portfolio may require an active process for deciding what happens when shares vest.

Hold?

Sell?

Diversify?

Fund another goal?

The answer will vary by investor. Taxes, trading restrictions, holding periods, liquidity needs, charitable objectives, and the rest of the financial plan all matter.

What shouldn’t determine the answer by itself is the fact that the stock has recently gone up.

Sometimes the most important portfolio decision isn’t identifying the next winner.

It’s recognizing how much your previous winners have already changed your risk exposure.

Don’t Ask Your Memory to Vote

The solution to recency bias isn’t becoming better at predicting which sector will lead next.

It isn’t selling everything that’s performed well.

And it certainly isn’t reflexively buying whatever performed poorly.

Those approaches simply replace one forecast with another.

The better defense is an investment process that doesn’t require you to reconstruct your portfolio strategy every time the market hands you a new reason to feel optimistic or pessimistic.

Build the portfolio around your objectives and risk profile.

Understand your exposure across all of your accounts.

Include employer stock and future equity compensation when evaluating concentration.

Establish parameters for how much risk you’re willing to allow any one company, sector, or economic driver to contribute.

And when equity compensation vests, treat those shares as a fresh allocation decision rather than automatically assuming yesterday’s allocation should become tomorrow’s.

Then periodically compare the portfolio you actually own with the one you deliberately set out to build.

That leads to one useful question to ask this quarter:

Have my recent winners quietly made me more concentrated than I ever consciously chose to be?

If the answer is yes, that doesn’t automatically mean those investments should be sold.

Taxes matter. Equity-compensation restrictions matter. Liquidity needs matter. Your broader financial plan matters.

But it does mean the portfolio deserves another look.

Because the job of an investment strategy isn’t to own whatever just worked.

It’s to maintain the amount and type of risk necessary to get you where you’re trying to go, even when the rearview mirror is telling you to do something else.

Sources

Greenwood, Robin, and Andrei Shleifer. “Expectations of Returns and Expected Returns.” The Review of Financial Studies, 2014.
https://academic.oup.com/rfs/article-abstract/27/3/714/1580705

Malmendier, Ulrike, and Stefan Nagel. “Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?” The Quarterly Journal of Economics, 2011.
https://academic.oup.com/qje/article-abstract/126/1/373/1901343

Sirri, Erik R., and Peter Tufano. “Costly Search and Mutual Fund Flows.” The Journal of Finance, 1998.
https://onlinelibrary.wiley.com/doi/10.1111/0022-1082.00066

Meulbroek, Lisa. “Company Stock in Pension Plans: How Costly Is It?” The Journal of Law and Economics, 2005.
https://www.journals.uchicago.edu/doi/abs/10.1086/430807