The investor's main adversary is neither the market nor the professionals: it is their own brain. Kahneman and Tversky showed that our financial decisions are systematically biased, and that those biases are predictable.
Loss aversion
Losing €100 hurts roughly twice as much as gaining €100 feels good. The direct and ruinous consequence: we cut our gains too early (to “lock them in”) and let our losses run (so as not to “realise” the failure). That is exactly the opposite of what we should do.
The other major traps
- Anchoring: fixating on your purchase price, which interests absolutely nobody but you — least of all the market.
- Confirmation bias: reading only what supports your thesis, and dismissing what contradicts it.
- Overconfidence: after a few successes, mistaking luck for skill. The danger grows with the gains.
- FOMO: buying because “everyone is talking about it”, which is to say precisely when everyone has already bought.
- Survivorship bias: only ever hearing about those who succeeded, never about the thousands who tried the same thing and failed.
Knowing a bias is not enough to protect you from it
This is the most unsettling part: even knowing loss aversion perfectly well, you will still experience it. Biases operate below consciousness. The only genuinely effective defence is not clear-sightedness, it is rules written down in advance.
The defence: decide while calm
Write down your thesis, your exit threshold and your horizon BEFORE buying, while you are calm. The moment at which you take a decision matters more than the decision itself: never decide in euphoria or in panic.
À retenir
- ✓Loss aversion pushes you to cut gains and let losses run.
- ✓Anchoring, confirmation, overconfidence, FOMO, survivorship bias: all operate unconsciously.
- ✓The only robust defence is the rule written down while calm, not in-the-moment clarity.