Have you ever had this experience? When TSMC climbed to NT800 you still didn’t dare buy, felt it could fall more; and when it came back to NT$100 you finally chased in — and then it dropped again. This isn’t just your problem; it might be a problem of the human brain.
There’s a commonly cited indicator in investing called the “fear index.” When the stock market crashes, that kind of volatility indicator usually spikes and everyone gets too scared to move. But there’s something even more terrifying — when the market keeps going up and everyone around you is making money except you, that “left behind” feeling can sometimes hurt more than losing money.
This is called “fear of missing out” (FOMO). Why do you know what you should do, yet still can’t do it? Why do some people earn money by luck and then walk a path of no return? How much impact does psychology actually have in investing?
Understanding these won’t make you rich overnight, but it will help you avoid many costly mistakes.
1. When You Buy a Stock, What Are You Actually Looking At?
Most people look at the price. What TSMC trades at today, yesterday, last month. Up makes them happy, down makes them nervous. They open their brokerage app ten-plus times a day, staring at that line, their heartbeat jumping along with the candlesticks.
But what you should really look at isn’t just the price; it’s value. Price is what people in the market are willing to pay to buy or sell the stock; value is what the company itself is actually worth. The two are not the same. Price changes every day, but a good company’s fundamentals don’t suddenly turn bad just because the stock dropped 3% today.
Sometimes the company reports earnings that aren’t bad at all, yet the stock drops anyway. Many people panic and sell, then later the stock recovers and runs higher. Why? Because they were looking at the price, not the value. They weren’t judging the business; they were being dragged around by short-term volatility.
The core of investing is comparing price to value: only worth considering if the price is below your judgment of value; be cautious if the price is above value. Sounds simple, but the human brain is naturally bad at this.
Because price is a clear number, right there in front of you; value is a fuzzy judgment, requiring thought. And the human brain leans toward the clear and shies away from the fuzzy. Think about it — if someone asks “what’s TSMC trading at right now,” you can answer instantly; but if someone asks “what is TSMC actually worth,” you’d think for a long time, and you’d still be unsure.
That’s why many retail investors make decisions based on price, not value — because looking at price doesn’t require much thinking; looking at value does.
2. People Who Earn by Luck Usually Give It Back Next Time
Stories like this circulate online: someone put a few hundred thousand into TSMC over a decade ago, never moved it, and now it’s worth tens of millions. The comment section is full of “I wish I’d bought back then.”
These stories are seductive, but they have one fatal flaw. Did that person actually research the semiconductor industry when they first bought? Did they really judge the future trajectory of leading-edge process nodes? Or did they just think “TSMC is a big company, it won’t go bankrupt” and buy, then forgot, then happened to ride the wave of semiconductors and AI demand exploding?
Where’s the problem? People who earn by luck tend to make decisions the same way next time. After all, “I just bought randomly last time and made money,” they won’t bother learning how to analyze businesses or understand industry structure, because their experience tells them “you can earn without learning.”
In psychology this is close to confirmation bias: once a certain behavior gives you a good result, you keep reinforcing the belief that “this behavior is right,” until the market reverses and forces you to give back everything you earned, principal and profit.
Money earned by luck — the market will always find a way to make you return it. Not as punishment, but as a rule.
3. The Five Most Common Psychological Traps — How Many Have You Fallen Into?
Trap 1: Loss Aversion. The pain of losing NT10,000. That’s why retail investors would rather hold a losing stock than “admit the loss.” The result? A stock that should have been stopped out sits for three years and loses 50%.
Trap 2: Herd Mentality. When everyone is talking about one stock, one ETF, one cryptocurrency, you feel like “I have to jump on or I’m missing out.” That’s why bubbles kept repeating in 2021 shipping stocks, 2022 metaverse, 2023 AI concept stocks. You’re not convinced by the underlying asset; you’re afraid of being left behind.
Trap 3: Anchoring Effect. You see TSMC once hit NT800 you think it’s “cheap”; but its fair value might actually only be NT$600. “The price it once was” is not the same as “the price it should be.” Using past highs as reference points is one of the most common mistakes retail investors make.
Trap 4: Disposition Effect. You rush to sell winning stocks (locking in gains), and stubbornly hold losers (hoping to break even). The result is that your account is permanently filled with junk stocks, and the good ones never make you much. This is one of the most illogical designs of the human brain.
Trap 5: Overconfidence. After a few wins in a row, you start thinking you’re “talented” and “can read the market.” You start sizing up, shortening your holding period, adding margin, buying options. Overconfidence is the shortest path from “small gains” to “big losses” for retail investors.
4. What’s the Antidote? Three Simple But Counter-Intuitive Disciplines
After reading the traps you may ask: “Then what do I do?” The answer is simple, but doing it will feel deeply uncomfortable — because it goes against human nature.
Discipline 1: Before You Buy, Write Down Your “Exit Conditions.” Not vague statements like “I’ll bail at 20% profit,” but value-based ones like “if the company’s revenue declines more than 10% for two consecutive quarters, I sell.” Pull the sell decision out of “the emotion of the moment” and back into “the judgment you made back then.”
Discipline 2: Enter in Tranches; Never All-In. If you like a company, enter in 3 to 5 tranches. That way even if you’re wrong, your loss is contained within what you can bear; if you’re right, you still have bullets left to add. All-in is poor-people’s thinking; tranching is rich-people’s strategy.
Discipline 3: Review Periodically, but Don’t Stare at Screens Daily. Once a month is enough for checking your account. People who stare at screens daily aren’t investing — they’re playing a game. Investing is about the business, not the chart.
5. Conclusion: Investing Isn’t a Game for the Smart — It’s a Game for the Disciplined
The people who make the most money in the market don’t have the highest degrees, the best information, or the best luck. They are the ones with the strongest psychology — the ones most capable of fighting their own instincts.
When the market crashes and others panic, they dare to add. When the market rages and others pile in, they calmly trim. When short-term losses tempt you to stop out, they read the financials to confirm the fundamentals haven’t changed. They aren’t without emotion; they have emotion but aren’t ruled by it.
Money earned by luck will be returned through skill — unless you’re willing, starting today, to shift investing from “looking at price” to “looking at value,” from “going by gut” to “going by discipline.”
This path is boring. But boring is the most expensive antidote a retail investor can buy.
This content shares the author’s personal views on investing psychology and is not investment advice. Investing involves market and psychological risk; past performance does not represent future returns. The psychological biases mentioned in this article are academic theory; please assess your own situation carefully when applying them, and consult a qualified financial advisor.
Disclaimer: This article shares personal-finance concepts and compiled information. It does not constitute any specific investment, tax, or legal advice. Markets carry risk; invest carefully and use your own judgment based on your risk tolerance, and consult a qualified professional advisor.
Tags
Investment Psychology, 心理偏誤, Confirmation Bias, 錯過的恐懼, 價格 vs 價值, Retail Trap, Long-Term Investing, 從眾效應, 行為經濟學, Investment Discipline, 風險控管, 認知偏誤
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