From the perennial classic - A Random Walk Down Wall Street:
Each year a statistics professor begins her class by asking her students to write down the sequential outcome of a series of one hundred imaginary coin tosses. One student, however, is chosen to flip a real coin and chart the outcome.
The professor then leaves the room and returns in fifteen minutes with the outcomes waiting for her on her desk. She tells the class that she will identify the one real coin toss out of the thirty submitted with just one guess. With great persistence she amazes the class by getting it correct.
How does she perform this seemingly magical act? She knows that the report with the longest consecutive streak of H (heads) or T (tails) is highly likely to be the result of the real flip.
The reason is that, presented with a question like which of the following sequences is more likely to occur, HHHHHHTTTTT or HTHTHTHTHTT, despite the fact that statistics show that both sequences are equally likely to occur, the majority of people select the latter "more random" outcome. They thus tend to imaginary sequences that look much more like HHTTHTHTTT than HHHTTTHHHH."
Your monkey brain at it again. It tricks you into thinking that what just happened has an impact on what's about to happen.
Like if you flip a bunch of heads, then a tails is surely coming, right? Your monkey brain feels like that's right. It’s not.
It's called the gambler's fallacy. It often pops up when investors think that recent market performance has an impact on what will happen next. Like if the market's been up a bunch recently, surely it's going to come back down.
Sound familiar? We've heard the expert talking heads (and neighbors and friend and family and coworkers) blab about how the market's going to drop just because it's been up for 9 years.
The thing about monkey brains is we've all got one, even the market "experts".
Of course, there are economic reasons hot markets usually precede short-term corrections and longish-term recessions. But those reasons have nothing to do with the mere fact that the market's flipped heads 9 years in a row. Correlation is not causation…but that's another topic for another day.