Why Investors Keep Losing: The Hidden Psychology Behind Bad Money Moves
Behavioral economist Richard Thaler — yes, the guy who won the Nobel Prize in 2017 — has spent decades trying to answer one timeless question:
Why do smart people keep doing dumb things with their money?
His classic book, The Winner’s Curse, just got reissued with fellow behavioral scientist Alex Imas, and it’s as relevant as ever. The book dives deep into the strange, emotional side of investing — the part that makes us buy high, sell low, and convince ourselves that this time we’ll get it right.
Financial columnist Jason Zweig from The Wall Street Journal recently spoke with Thaler and Imas about the re-release, and their insights are brutally honest:
Even the most sophisticated investors — think universities and large foundations — fall for the same emotional traps as everyday traders.
They chase returns. They ignore risk. They focus on yield instead of real growth.
Sound familiar?
The Dangerous Allure of High Yields
We’ve all been there: you see a fund or product promising an unusually high yield, and you think, Wow, that’s where the smart money is going.
But as Thaler reminds us — if something looks too good to be true, it probably is.
High yields often come with hidden risk. And in today’s world, where currencies are constantly losing value due to inflation, even big nominal returns might not mean much in real terms.
As pointed out, compounding is powerful — “the royal road to riches.” But that only works if your principal is safe and your strategy is sound. Chasing the highest yield without understanding the risk is like running faster in the wrong direction.
Old Bubbles, New Wrappers
Meme stocks. Crypto. Leveraged ETFs. It might all seem new, but it’s just history repeating itself — this time with Wi-Fi.
From Tulip Mania in the 1600s to the South Sea Bubble in the 1700s, humans have always chased speculative fads. Back then, investors also knew they were in a bubble — they just thought they were smart enough to get out before it popped.
The internet has only made it easier for groupthink to spread. Communities like WallStreetBets rally millions around the same trades, turning speculation into a social event, not an investment strategy.
The tools have changed. The psychology hasn’t.
Why We Can’t Let Go of Losing Trades
One of the most common mistakes investors make is hanging on to losing positions for far too long. Behavioral economists like Richard Thaler call this the disposition effect — the tendency to sell winners too quickly while stubbornly holding on to losers.
It’s pure human nature.
Nobody likes admitting they were wrong. So, we convince ourselves, “I’ll just wait until it gets back to what I paid.”
But markets don’t care what price you bought at. They don’t owe you a rebound. Holding on just to avoid the pain of a realized loss is one of the costliest emotional mistakes an investor can make.
As Chris Markowski likes to say:
“When you’re in a hole, stop digging.”
Cutting your losses isn’t weakness — it’s discipline. It’s the difference between being right and being rich.
The Power of Slowing Down
We live in a world obsessed with speed — fast trades, instant results, and constant updates. But here’s the truth: investing was never meant to be a sprint.
As Richard Thaler and other behavioral experts remind us, the smartest move most investors can make is to slow down. Make fewer decisions. Check your portfolio less often. Focus on the long game instead of the daily noise.
When you understand what you own, why you own it, and how long you plan to hold it, short-term fluctuations stop mattering. That kind of patience and discipline doesn’t just preserve your sanity — it builds real wealth over time.
You’re Not Supposed to Beat the Market
Here’s another hard truth from Thaler: If most professional mutual funds — with full-time analysts and powerful algorithms — can’t beat the market consistently, why do you think you can?
It’s like stepping up to bat against a Major League pitcher because you played Little League once. Sure, you might connect with a pitch every now and then, but the odds are not in your favor. If you want to speculate, fine — treat it like a hobby. But for serious investing, keep most of your money diversified, boring, and long-term. That’s where real wealth is built.
The Bottom Line
The biggest danger to your portfolio isn’t the market — it’s YOU. Your emotions, your overconfidence, your impatience — those are the real threats.
Thaler’s The Winner’s Curse isn’t just a book; it’s a mirror showing us that the more things change — technology, access, data — the more our behavior stays the same.
The smartest investors aren’t the ones who trade the most. They’re the ones who do the least — patiently, quietly, and consistently.
