Being an investor isn’t easy.
Markets are unpredictable, and so are we.
It’s not just about what happens in the economy.
It’s also about how our own minds work against us.
Take today’s investing temptations: Bitcoin, the ‘Magnificent Seven’ US tech stocks, gold.
All within reach, just a tap on a screen.
Benjamin Graham, one of the most respected investment thinkers, put it bluntly:
"The investor’s chief problem – and even his worst enemy – is likely to be himself."
Why we think the way we do
Our brains work in two ways when making decisions: one is fast and instinctive, the other is slower and more rational.
The first—our gut reaction—is driven by an ancient part of the brain designed for survival. It reacts to fear and reward, making us prone to snap decisions. This is the part that tempts investors to follow trends, chase rising markets, and fear missing out.
It’s driven by the amygdala, an old, reptilian part of the brain responsible for processing fear and risk, and the nucleus accumbens, which fuels our desire for reward.
The second is more logical. It takes its time, weighing evidence and making careful choices. But here’s the problem: in high-pressure situations, our instinctive side tends to take over. And investing is full of these situations.
When our instincts lead us astray
We don’t just rely on gut instincts randomly—they tend to take over under certain conditions. And unfortunately, these conditions are all too common in investing.
When things get complex, when information is incomplete or constantly shifting, when we’re balancing multiple goals—our fast-thinking brain jumps in. It also takes over when we’re stressed or when we’re making financial decisions that involve other people.
Source: Albion Strategic Consulting
For example, do you take little risk today to protect your capital, or more risk to ensure you meet your long-term goals? That tension alone is enough to trigger emotional decision-making.
We also struggle when we see others making different choices. Watching friends, colleagues, or the media pile into an investment can make it even harder to stay rational.
This is where common biases creep in.
We tend to focus too much on recent events, like the rising price of gold or Bitcoin’s latest surge. This is known as recency bias—our tendency to assume what’s happening now will keep happening. Envy, greed, and fear of missing out (FOMO) make this worse.
We also fall into overconfidence—believing we can pick winning investments or spot patterns when none exist. It’s the same reason gamblers think they’re “on a roll.”
Another classic mistake is hindsight bias—looking at past market movements and believing they were predictable. This often leads investors to think they can predict what comes next. They can’t (to be clear, no one can).
Then there’s anchoring—fixating on certain numbers. Say the stock market doubles in a decade, but then drops by 15% in a few months. Many investors will feel like they’ve “lost” money, simply because they’re anchoring to the recent high rather than the starting point.
Familiarity can also mislead us. Many investors feel more comfortable with well-known companies in their home country. But this home bias often leads to missing out on better opportunities globally. Even now, many UK investors hold a heavy bias toward UK stocks, despite them making up just 4% of the global equity market.
What can you do about it?
The key to curbing the reptilian-driven thinking system and firing up the logical and rational part of our brain, is to slow down.
Give your rational brain time to kick in.
One way to do this is by asking yourself a few key questions before the urge to act on your portfolio kicks in:
- Am I reacting to short-term market movements?
- Do I think I have an edge over professional investors who give investment advice full time?
- Am I assuming a trend will continue just because it’s been going up?
- Does hindsight make me think past market moves were obvious?
- Am I overconfident in my ability to predict the future?
- Am I sticking to investments simply because they feel familiar?
- Have I fully understood the risks, or am I just excited about the potential return?
If you find yourself answering “yes” to any of these, take a step back.
At the end of the day, the poor decisions that we make based on our emotions and driven by the biases we all suffer, result in less money in our retirement (or other) investment pots, which will have lifestyle consequences down the line.
In other words, bad investment decisions don’t just dent portfolios; they change lives.
Less money in retirement means fewer choices down the road.
The best investors resist temptation. They stick to their process. They avoid the noise. They let their logical side take control.
Do the same, and your future self will thank you.
