Loss aversion and FOMO
Two wiring faults that cost ordinary investors more than any fee. Both are predictable, which is the only good news.
The largest single determinant of most people's investment outcome is not which assets they chose. It is what they did during the two or three worst weeks, and the two or three most exciting ones.
Loss aversion
A loss registers more strongly than an equivalent gain. Losing a thousand feels worse than gaining a thousand feels good, and by a meaningful margin.
The pain of a falling portfolio peaks near the bottom, which is when selling is most costly. The feeling is at its most intense precisely when acting on it is most expensive — that is not a coincidence, it is the same fact.
Fear of missing out
The mirror image. Watching something rise without you generates a specific discomfort that resolves by buying, and it resolves most urgently after the largest gains — which is to say, at the highest prices.
Both biases push in the same direction: sell low, buy high. Neither requires you to be foolish. They are standard-issue human responses that happen to be miscalibrated for this particular activity.
What actually helps
- Decide in advance. Write down what you will do if a holding falls 30%, before it does. A rule written calmly survives a panic better than a judgement made inside one.
- Look less often. Checking daily maximises the number of losses you experience without changing the outcome.
- Automate contributions. Removing the decision removes the opportunity to make it badly.
- Write down the reason. When you buy, record why. If you later sell, check whether the reason changed or just the price.
This is well established and worth saying plainly. Understanding loss aversion does not stop you feeling it. The defence is structural — rules and automation — not insight.