Behavioural Biases That Hurt Investors
Your biggest investing opponent is often your own brain. Here are the biases that quietly cost investors money.
Markets are driven by people, and people are not perfectly rational. Recognising your own mental shortcuts — behavioural biases — is one of the most underrated investing skills.
The biases that cost the most
- Loss aversion — the pain of a loss feels bigger than the joy of an equal gain, so we hold losers too long and sell winners too early (the disposition effect).
- Herd mentality — buying what everyone’s buying, often near the top.
- Recency bias — assuming the recent past will continue, so we chase last year’s winners.
- Overconfidence — overestimating our skill, leading to overtrading.
- Confirmation bias — seeking only information that supports what we already believe.
- Anchoring — fixating on a reference price (like our buy price) instead of current reality.
- Sunk-cost fallacy — throwing good money after bad to justify a past decision.
How to protect yourself
- Have a written plan and rules decided before emotions run high.
- Automate investing with SIPs so routine decisions aren’t emotional.
- Keep a journal and review decisions honestly.
You can’t eliminate biases, but naming them makes you far less likely to act on them. Education only, not advice.
