Why We Are Our Own Worst Enemy — And What We Can Do About It

This post is part of my ongoing series on investment philosophy. If you haven't read the earlier pieces, you can find them at https://www.williamseah.com/blog.

This post is part of my ongoing series on investment philosophy. If you haven't read the earlier pieces, you can find them at https://www.williamseah.com/blog.

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Let me ask you something honest.

When you check your portfolio and it is down — even slightly — how does it feel? Now think about the last time it was up by the same amount. Which feeling was stronger?

If the loss felt heavier, you are not alone. And you are not weak. You are human.

This is what behavioural economists call loss aversion. Research suggests that we feel the pain of a loss roughly twice as intensely as we enjoy an equivalent gain.¹ Losing $1,000 does not feel like the mirror image of gaining $1,000. It feels significantly worse. In other words, if we lost $1,000 and we found a $1,000, we will feel sad overall (even though conventional economics suggest we should be indifferent.)

That asymmetry — that gap between how gains and losses land in our minds — quietly shapes some of the most important financial decisions we make.

What Loss Aversion Actually Costs Us

The average investor consistently earns less than the market returns becuase of when they made their moves

Here is where it gets sobering.

Over the long run, markets have consistently rewarded patient investors. We know this. The data is clear. And yet, study after study shows that the average investor consistently earns less than the market returns — not because they picked the wrong funds, but because of when they made their moves.²

We buy when things are exciting. We sell when things are scary. And in the stock market, exciting means prices are rising. Scary means prices are falling. In other words, we buy high and sell low — the precise opposite of what we set out to do. The strategy was never the problem. We were.

This gap between what the market returns and what the investor actually earns has a name: the behaviour gap. And it is one of the most expensive gaps in personal finance. Not because of fees, not because of bad funds — but because of us, acting on how we feel in a given moment.

The News Makes It Worse

The news needs drama to survive. Your portfolio does not.

Now consider the environment we are investing in.

The 24 hour news cycle is not designed to inform you. It is designed to keep you watching. And the most reliable way to keep you watching is to make you feel something — preferably urgency, fear, or outrage. Headlines are written to provoke a reaction, not to give you a balanced picture of reality.

The problem is that our brains cannot easily distinguish between "this is important news" and "this is news that has been made to feel important." And so we react. We feel the pull to do something — to move our money, to reduce our exposure, to wait for things to settle before we invest again.

But markets do not wait for things to feel comfortable. By the time the headlines feel reassuring, the recovery has often already happened. The investors who benefited were the ones who stayed in — not the ones who waited on the sidelines for the storm to pass.

The news needs drama to survive. Your portfolio does not.

So What Do We Do?

Feelings make poor financial advisors

The answer is not to become emotionless. That is neither possible nor desirable. Feeling anxious about uncertainty is a sign that you care about your future — and that is a good thing.

But feelings make poor financial advisors.

What we need is a plan that accounts for the fact that we are human. A plan that is built during calm moments, not reactive ones. A plan with enough structure that when fear kicks in — and it will — we have something to hold on to other than our emotions.

This is precisely why I believe in having an investment philosophy. Not as a rigid rulebook, but as an anchor. Something that reminds us, in the middle of the noise, why we started and where we are headed.

Markets will continue to be volatile. The news will continue to be alarming. And we will continue to feel things deeply — because we are wired to.

The question is not whether we feel it. The question is how we respond to our feelings.

I write on topics related to financial habits and decisions. Do explore my other articles at https://www.williamseah.com/blog if the ideas resonate. Drop me an email at reach.william@gmail.com or text me at 9673 1523 if you'd like to chat over coffee or whisky.

References

¹ Kahneman, D. & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica, 47(2), 263–291. In this landmark study, Kahneman and Tversky found that people evaluate losses and gains asymmetrically — the pain of losing a given amount is psychologically about twice as powerful as the pleasure of gaining the same amount. Kahneman was awarded the Nobel Prize in Economics in 2002 for this work. Read the original paper

² DALBAR Quantitative Analysis of Investor Behavior (QAIB), 2025. DALBAR has tracked the gap between market returns and actual investor returns since 1985. Their research consistently shows that the average investor underperforms the market — not due to poor fund selection, but due to poor decisions. In 2024, the average equity investor earned 16.54% against the S&P 500's 25.02% return — a gap of nearly 8.5 percentage points driven almost entirely by behavioural decisions such as selling during downturns and re-entering too late. Read more at DALBAR