Money Earned by Luck Will Be Lost: 5 Psychological Traps Behind Retail Losses

Have you ever had this experience? When TSMC climbed to NT$1,000, you didn’t dare buy — too expensive. When it dropped to NT$800, you still didn’t dare — it might fall more. When it climbed back to NT$1,000, you chased in, and it dropped again.

This is not just your problem. It’s likely a problem with the human brain. In financial markets, there’s an indicator often called the “fear index.” When the market plunges, that kind of volatility indicator usually spikes, and everyone freezes. But there’s something even more terrifying — when the market keeps rising, everyone around you is making money, and you’re not on board. That feeling in your gut is sometimes more painful than losing money. This is called “fear of missing out.”

Why do you know exactly what to do but can’t execute? Why do some people who made money by luck end up on a path to ruin? How much do psychological factors actually influence the investing world? Understanding these won’t make you rich overnight, but it will save you from a lot of costly mistakes.

1. Price vs Value: Why the Brain Loves Clear Numbers

Let’s start with the most basic question: what are you actually looking at when you buy a stock?

Most people look at the price. What’s TSMC today? Yesterday? Last month? Up makes you happy, down makes you anxious. You open the brokerage app a dozen times a day, watching that line jump up and down, your heartbeat syncing with the K-line.

But what you should really look at isn’t just price — it’s value. Price is what people in the market are willing to pay to buy or sell that stock. Value is what the underlying company is roughly worth. These are two different things. Price changes every day, but a good company’s fundamentals don’t suddenly turn bad just because its share price dropped 3% today.

Sometimes a company reports earnings that aren’t bad at all, and yet the share price falls. Many people panic the moment they see it and sell, only to watch the share price climb back up later. 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: consider buying only when the price is below your estimate of value, and be cautious when the price is above value.

This sounds simple, but the human brain isn’t naturally good at it. Because the price is a clear, definite number right in front of you, while value is a fuzzy judgment that requires thought. And the human brain tends to shy away from fuzzy things.

Think about it. If someone asks “What’s TSMC’s price right now?” you can answer immediately. But if someone asks “What is TSMC actually worth?” you’d have to think for a long time, and you wouldn’t even be sure your answer was right.

That’s why many retail investors make decisions based on price, not value. Looking at price takes very little thinking. Looking at value takes real effort.

2. People Who Make Money by Luck Usually Lose It Next Time

The internet loves to circulate stories like this: someone put a few hundred thousand into TSMC more than ten years ago, did nothing, and now it’s worth tens of millions. The comment section is full of people saying I should have bought earlier.

These stories are captivating, but they have one fatal flaw: did that person actually research the semiconductor industry at the time? Did they really analyze advanced-process trends? Maybe they just thought TSMC is a big company, it won’t go bankrupt, bought it, forgot about it, and then happened to ride the semiconductor and AI demand explosion.

What’s the problem? People who made money by luck tend to make decisions the same way next time. After all, last time a casual buy made them money. They don’t bother learning how to analyze a business or understand industry structure, because their experience has taught them they can make money without doing so.

In psychology this is close to confirmation bias — once an action has produced a good outcome, you reinforce that action, even if there wasn’t actually a causal relationship between the action and the outcome.

If you flip a coin heads three times in a row, you don’t think you’re especially good at coin flipping, because you know it’s luck. But when you make money investing, you easily assume it was your own judgment. This is where the brain deceives you the most.

What’s the Real Standard for Judgment?

It’s the feeling you have after closing a position:

• If a good result leaves you feeling satisfied and grounded — it means you had thought it through, planned it out. That’s closer to investing
• If a good result leaves you feeling excited, like winning the lottery — it means you didn’t see it coming. That’s much closer to the brain response of gambling

Research in neuroeconomics has shown that reward anticipation and risk decision-making are closely linked. When unplanned action suddenly produces a good result, the brain latches onto that stimulation and makes you want to do it again. Satisfaction can sustain the activity. Excitement can lead to addiction — and then you bet bigger and bigger until you blow up.

That’s why people who start investing with luck often end up losing more than people who never invested at all. Because that one success pushed them into a game they weren’t ready for.

3. The More You Trade, The More Opportunities to Make Mistakes

Why do some people just can’t stop overtrading?

Taiwan’s brokerage apps are too good. Three taps and you’ve placed an order. Buy or sell anytime, anywhere on your phone. It’s so convenient you barely have to think before completing a trade. This is actually a trap.

The more often you trade, the more chances to make mistakes. Every tap to buy or sell is an opportunity for psychological bias to creep in. Have you ever thought about the old days when you had to call in to place an order? The operator confirmed once, you confirmed again — that process alone gave you a few extra seconds to think, do I really want to do this?

Now? A swipe of the finger and the deal is done. The cost of impulse has never been lower.

A lot of behavioral finance research and market observation point in the same direction: people who trade less frequently are actually more likely to avoid unnecessary mistakes. It’s not that they’re better at picking stocks — it’s that they buy and then don’t move much. Trading less sidesteps most psychological traps.

The ideal is to make trading a little harder — add a confirmation step, wait 30 seconds. That small friction is enough to make the brain think one more time, and that one extra moment is often the key to avoiding a bad decision.

If one day a brokerage dared to do one thing — make trading slightly more cumbersome for its clients, add an extra layer of confirmation, a small cooling-off period — its fee revenue might take a hit in the short term. But in the long run, if its clients make fewer mistakes and get more stable results, the clients will be less likely to leave and may even park more money there. That brokerage might just become the real winner. But right now, there aren’t many firms willing to actively reduce their clients’ trading impulses.

4. High Risk = High Return? The Real Definition of Risk

Now let’s talk about a concept most people get wrong: “high risk, high return.” You’ve heard this a hundred times. But have you ever thought carefully about what risk actually means?

Most people interpret risk as the possibility of losing money — high risk means you might lose a lot, high return means you might make a lot, so together it means you might win big or lose big. But if high return always equals high loss, what’s the point of investing?

The problem is in the translation: the English word risk is not the same as danger. The core meaning of risk is closer to uncertainty — I don’t know what’s going to happen. The correct interpretation of high risk, high return is: investments with high return potential usually have high uncertainty. But high uncertainty doesn’t necessarily mean you’ll lose money. It means you can’t accurately predict what will happen.

So How Do You Reduce Uncertainty? Look Further Out.

Here’s an analogy. You open your navigation app to drive from Taipei to Kaohsiung. Estimated time: 4.5 hours. The actual arrival time usually isn’t off by much — maybe 20 or 30 minutes. But if you’re only driving 10 minutes to the convenience store nearby, the nav says 10 minutes, and it ends up taking 20 — short-distance predictions are actually easier to get wrong, because short trips have too many variables. One red light can throw everything off.

Investing is the same:

• Predicting whether a stock will go up or down tomorrow has about the same accuracy as a coin flip
• But judging whether TSMC will still be a globally important semiconductor company in 10 years — that long-term judgment has much more analytical space

The further you look, the lower the impact of short-term noise, the lower the uncertainty, the lower the sense of risk, and the more stable the return. Long-term investing returns are more stable than short-term trading not because of any magic — it’s because time itself is filtering out short-term noise for you.

So next time someone tells you that stock is risky, ask yourself one question: is it genuinely dangerous, or just short-term uncertain? If it’s just short-term uncertainty, can I use time to reduce that uncertainty? Once you internalize this, your entire perspective on investing changes.

5. Don’t Get Knocked Out: Start Small and Learn to Judge

How do you actually invest for the long term? The key is don’t lose too much.

It sounds like a cliché, but it’s true. You put in NT$1 million, lose NT$500,000, you’re left with NT$500,000. To get back to NT$1 million you need to earn 100%. But if you only lost NT$100,000 and you’re sitting on NT$900,000, you only need to earn about 11% to get back to NT$1 million.

The bigger the loss, the harder it is to recover. The harder it is to recover, the more likely you are to give up. Once you give up, you leave the market. Once you leave the market, you can’t enjoy the long-term compounding effect.

So the most important thing in investing isn’t making big money every time — it’s not letting yourself get knocked out. As long as you’re still in the market, time has a chance to work for you. The moment you’re out, you have nothing.

Start with an Amount You Can Afford to Lose

Many people don’t understand this. They think what’s the point of investing NT$3,000 or NT$5,000? Even if it doubles, that’s just a few thousand. Wouldn’t it be more efficient to wait until I have NT$1 million?

Where is this idea wrong? It ignores the value of experience.

When you invest with NT$3,000, you don’t get too excited when it goes up, and you don’t get too hurt when it goes down. That psychological state lets you observe the market calmly and slowly learn to judge. But if you wait until you have NT$1 million and your very first investment is NT$1 million, you’re too兴奋 to sleep when it goes up, and you’re too anxious to sleep when it drops 10%. Under that psychological pressure, it’s very hard to make good decisions.

What’s truly valuable isn’t the few thousand dollars you put in — it’s the judgment you develop through the process. That judgment may help you make decisions worth tens or hundreds of thousands in 10 years.

6. Comparison Is the Most Toxic Psychological Trap

A colleague tells you he made 30% on some stock, and you immediately feel your 8% is too small. You start wondering whether you should switch to a different approach. Or you see someone on PTT showing off a NT$500,000 monthly return, and after reading it you feel terrible, thinking there must be something wrong with your method.

Comparison is one of the most toxic things in investing. From a psychological standpoint, excessive comparison usually ends in one of two ways:

• Give up: forget it, I’m not cut out for investing
• Impulse: if others are making that much, I should too — then you start chasing highs, adding leverage, doing things you don’t understand

Neither usually ends well. And comparison has one really insidious feature: you rarely compare yourself to people doing worse than you. You almost always compare yourself to people doing better — to Buffett’s returns, to the neighbor who got lucky and struck it rich — and you arrive at the conclusion I’m no good.

That conclusion is no help to your investing. What you should actually do is compare yourself to yesterday’s self. Is my judgment better this year than last? Am I making fewer mistakes? Is my understanding of the market deeper? That’s a meaningful comparison.

7. Investing vs Speculating: The Difference Is Planning, Not the Asset

Many people think buying stocks is speculating, and buying real estate is investing. This distinction is wrong.

The real difference isn’t what you buy — it’s how you think:

• Investing is acknowledging you don’t know the future, but choosing to research, think, make a judgment, and then bear the result
• Speculating is acting as if you already know the future — this stock is definitely going up, this news is definitely true — you’re not making a judgment, you’re making a bet

There’s an even simpler test. After closing a trade that made money, if you feel satisfied and grounded, believing your analysis was right, what you did is closer to investing. If you feel excited and thrilled, thinking you just got really lucky, what you did is closer to gambling.

This distinction matters enormously, because it determines whether you can stay in the market over the long term.

• An investor who loses money will look for causes, refine their method, do better next time
• A gambler who loses money will look for the next opportunity to win it back, and lose more in the process

Failed Cases Are Worth More Than Success Stories

Everyone loves to hear success stories — who bought what and made several times their money, and you want to copy their method. But success stories offer limited help, because that person’s personality, capital, timing, and risk tolerance are all different from yours. What works for them may not work for you.

What actually helps you is the failure story — see how other people lost money, see what traps they fell into, and then ask yourself: if it were me, would I have made the same decision?

If the answer is no, that failure has little to do with you. But if the answer is oh my God, I would have done exactly the same thing — congratulations, you’ve found your weakness.

If the lessons you learn from successful role models are worth 10 points, the lessons you learn from failed cases may be worth far more. Why the big difference? Because there are thousands of paths to success, each person’s path is different, and you can’t easily copy them. But the failures fall into just a few categories — chasing highs and panic-selling, overtrading, adding leverage, following tips, skipping homework. Avoid these traps, and whatever path you take from there won’t be too bad.

8. Make Investing a Habit, Not an Act of Willpower

There’s a narrative that the 2030 generation may find it harder to accumulate assets than their parents did. The previous generation had many people who built wealth through real estate. But housing prices in Taipei are still very high — an ordinary apartment easily runs into the tens of millions of NT$, with NT$20+ million not uncommon in many districts. Relying on a salary to manage that kind of pressure is intense for many people.

Many young people give up because of this, thinking effort is useless. But giving up is the worst choice.

Sure, you probably can’t replicate your parents’ real estate windfall in the same way. But you still have 50 or 60 years of life ahead of you. And the reality for your generation is that relying only on state pension and labor pension after retirement may not be enough to support the lifestyle you want. You need to build your own cash flow.

One of the most important ways to build cash flow is long-term investing. Not asking you to take wild risks. Not asking you to chase hot stocks. Just steadily put a fixed amount into the market every month — NT$3,000, NT$5,000, NT$10,000, whatever you can afford. Set up automatic deduction, then forget about it. Don’t check it every day.

This method sounds the opposite of exciting. No thrill of picking the next hot stock, no成就感 of catching the bottom. But 3, 5, 10 years later, you may find that the results this boring method accumulates are far more impressive than you imagined.

And more importantly, in the process you learn how to coexist with the market — how to stay calm when it falls, how to stay grounded when it rises. These abilities cannot be bought with money. They can only be earned with time.

Investing has nothing to do with age. It has nothing to do with salary level. It has everything to do with whether you’re willing to start now. The best way is to make it a habit — once a habit is built, you don’t need willpower anymore. Just like brushing your teeth every day, you don’t have to convince yourself to do it. You just do it.

Closing: You Don’t Need to Beat Others — Just Stop Making the Same Mistakes

The core of today’s article isn’t telling you which stock to buy. It’s helping you recognize the things in your own brain that may be costing you money:

• Look at value, not just price — the brain likes clear numbers, but train yourself to handle fuzzy judgment
• Don’t confuse luck with skill — satisfaction is investing, excitement is probably gambling
• Lower your trading frequency — every buy and sell is an opening for psychological bias
• Risk isn’t just about loss — it’s about uncertainty — the further you look, the lower short-term uncertainty usually is
• Don’t only chase big wins — focus on avoiding knockout losses — staying in the market is what lets time work for you
• Learning from failure beats copying success — find your own weak points in other people’s mistakes
• Don’t compare to others — compare to yesterday’s self — comparison is the most toxic psychological trap
• The difference between investing and gambling is whether you have a plan — start small and turn investing into a habit

You may hear all of this and think it makes sense, but tomorrow when you open your brokerage app and see a stock hit the daily limit up, will your finger once again be unable to resist tapping?

If so, that’s not surprising — the human brain was not designed for investing. But at least now you know. Knowing what mistakes you’ll make and not knowing at all are two completely different tracks.

That small gap, over 20 or 30 years, becomes an entire world’s distance.

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Disclaimer: This article shares ideas on investing psychology and behavioral finance for reference only. It does not constitute investment advice. Investing involves risk. Past performance is not indicative of future results. Please assess your own risk tolerance carefully, and consult a qualified financial advisor where necessary.