There is a question that, after twenty years in the industry, keeps returning to me like a pendulum: why do we keep selling when markets fall and buying when they are at their peaks?
No curriculum, experience or expertise makes a difference: the moment money is at stake, human beings revert to acting as they did in the earliest millennia of their history, guided by instinct before logic.
Investing is, more than mathematics or finance, a contest between ourselves and our emotions. And often, it is not we who prevail.
In my work — and in the many discussions I have had as an Opinion Reader in the pages of Il Sole 24 Ore — I continually observe the same pattern: educated, well-prepared, attentive people who reason with clarity in ordinary circumstances, yet who become restless, impulsive and vulnerable the moment their portfolio drops 5% without warning.
Not because they “fail to understand markets”, but because they fall prey to certain deeply rooted psychological mechanisms: cognitive biases.
I should like to describe the five most frequent ones. Not as a list, but as I encounter them each day in practice: small fractures in our rationality that, if left unchecked, can open into genuine financial chasms.
Loss Aversion: the most costly emotional trap
Losses weigh more heavily than gains. This is not a figure of speech; it is a fact: the pain caused by a loss is psychologically more intense than the satisfaction generated by an equivalent gain.
For this reason, when markets become turbulent, even the most disciplined investor begins to perceive the situation as a personal threat.
Loss aversion is like that inner voice which, in moments of panic, suggests you “cut your losses before it is too late.” A voice that is understandable, human. But financially devastating: major losses do not arise from remaining invested; they arise from exiting at the worst possible moment.
Overconfidence: when we believe we can see further than others
Overconfidence is not arrogance; it is far more insidious. It is that feeling which takes hold after a couple of well-judged decisions: “I am beginning to understand how the market moves.”
And from there, step by step, the risk of over-exposure increases.
During prolonged bull phases, this bias frequently takes command. The investor who has witnessed nothing but rising markets for months begins to feel more capable, more clear-headed, more “attuned”. Until the market decides to remind them that finance does not reward certainty, but discipline.
I have learnt that overconfidence resembles a calm sea: it appears reassuring, yet it is precisely in such conditions that experienced practitioners begin to grow concerned.
Recency Bias: the present as the only truth
We observe this constantly: two years of rising markets lead people to believe that growth will continue indefinitely; two months of declines conjure a bottomless precipice. This bias explains why so many investors allow themselves to be carried along by the prevailing narrative — euphoria or despair, it matters not. The present becomes the entire mental horizon.
The paradox is that a glance at a long-term chart would be sufficient to recall a simple truth: markets always oscillate, and negative phases are the norm, not the exception.
Recency bias confines us to the “here and now”, whereas investing is the art of the “there and then”.
Herding: the fear of being the only one in the desert
We are social animals. And in the financial world, too, the need to belong to a group profoundly influences our behaviour.
I observe this most clearly in moments of great fashion or great panic: “If everyone is buying, they must have understood something”, or “If everyone is selling, I had better do the same.” Yet history tells us something quite different: the crowd always arrives late. Always. The herd follows enthusiasm and flees from fear, but rarely makes sound decisions. The difficulty is that swimming against the current is not easy: it demands clarity, method, and a certain degree of intellectual solitude.
Yet in the long run, it is precisely that solitude which pays.
Confirmation Bias: the invisible cage of conviction
This is perhaps the most dangerous, because it is the most subtle: we seek out information that confirms what we already believe, ignoring everything else.
Thus, someone convinced that a sector will explode will read only articles confirming its potential; someone fearful of inflation will seek out only catastrophic analyses; someone who favours gold will find only studies crowning it the “eternal safe haven”.
The mind does what it does best: it protects its own convictions. But in investing, protecting an idea can mean destroying a portfolio.
The true antidote? A plan that anticipates your emotions
No investor is entirely immune to cognitive biases. Not even I, for all my experience. The difference lies not in the absence of certain emotions, but in not allowing them to make decisions. Sound financial planning serves precisely this purpose: to build a bridge between yourself and your objectives, robust enough to withstand emotional turbulence.
It is a process built on method, review and oversight, but above all on self-awareness. Because the primary risk in investing is not market volatility. It is the volatility of our own emotions.
Conclusion
We are built to survive, not to invest.
The human mind is designed to respond swiftly to threats, not to process data flows, forecasts and global uncertainties.
But with method, knowledge and independent professional guidance — free from commercial pressures — it is possible to neutralise these automatic responses and transform your portfolio into an instrument that works for you, rather than against you.
The best investments are not those that make your eyes light up for a quarter.
They are the ones that allow you to sleep soundly for years.