# Recency Bias + Factor Crowding

_Market Mechanics + Behavioural . 2026-05-21 . By Tanmay Kurtkoti. Educational, illustrative, not advice._

Thursday night. Friend texts a screenshot of a smallcase up 60 percent YTD. "Should I move my SIP into this."

Asked him one thing back. What made it do 60.

The smallcase ranks its picks by trailing 12 month return. That is a momentum tilt with a friendly name. The screen that picked it is the screen every other investor on the same WhatsApp group is reading on the same evening. Once you can see the engine, the question stops being whether to chase the 60 percent and starts being whether you have done this before without realising.

The factor has done it three times in eighteen years. Mar 2009 post GFC junk rally minus 28 percent. Mar 2020 COVID rotation minus 21 percent. Feb 2025 crowding unwind minus 19 percent. A 60 percent year is one tail of a distribution that also contains a minus 28. The brain treats it as the next year. The market treats it as the last one.

The mechanic underneath has a name. McLean and Pontiff 2016 ran 97 published anomalies out of sample after the academic paper landed. Median return fell 26 percent. Once a factor has a label, more capital runs it, more capital narrows the spread, and the SIP that arrived after the win year shows up in time to be the last buyer. Sirri and Tufano 1998 documented the flow asymmetry. Winners attract roughly five times the inflows per point of out performance vs losers shedding the same.

Three checks before the click. Name the factor, because if the screen has a label the crowd has one too. Read the rolling worst 12M window, not the loudest year, because the mean tells you the prize and the tail tells you the toll. SIP into the strategy you can hold while the chart goes red for nine straight months. The cancelled SIP earns the drawdown without the recovery.

The brain reads last year's return. The market is already reading next year's reversion.

How factor crowding, recency bias and the math of rolling distributions sit underneath every 12 month return number