Behavioral Traits Destroying Investor Wealth

Feel free to reach out to PSG Wealth Adviser Jac Van der Spuy  directly.

1. Loss Aversion

Loss aversion is the tendency to feel the pain of losses more intensely than the pleasure of

equivalent gains. This often causes investors to sell winners too early (locking in small gains) and hold onto losers for too long (hoping they'll bounce back). It leads to irrational decision-making and, ultimately, poor portfolio performance. Nobel laureate Daniel Kahneman found that losses hurt roughly twice as much as gains feel good — so this trait alone can sabotage even a well-designed investment strategy.

2. Herd Mentality

Many investors follow the crowd. When everyone is buying crypto or tech stocks, FOMO (fear of missing out) kicks in. The problem? By the time most people jump on the bandwagon, the big gains are already behind them. Conversely, when markets tank and fear is high, herd behavior causes mass panic selling — exactly the wrong time to sell. The result is classic buy-high-sell-low behavior.

3. Overconfidence

Confidence is good. Overconfidence is not. Investors often believe they can time the market, pick the next top-performing stock, or outsmart professionals. This leads to excessive trading, concentration risk, and ignoring diversification — all of which increase costs and reduce returns. DALBAR’s research shows that the average investor underperforms the market largely due to poor timing and impulsive decisions, both driven by overconfidence.

4. Short-Term Thinking

In today’s fast-paced world, we’re conditioned to expect instant results. But investing is a long game. Constantly checking portfolios, reacting to headlines, and expecting quarterly outperformance often causes investors to abandon sound strategies in pursuit of short-term gratification. This "impatience premium" costs investors more than they realise.

5. Confirmation Bias

Once investors form an opinion about a stock or market trend, they tend to seek out information that confirms their view — and ignore evidence that contradicts it. This tunnel vision can lead to poor due diligence, flawed decisions, and missed opportunities.

6. Recency Bias

We naturally place too much weight on recent events. If the market has been doing well for a few months, we believe it’ll continue. If it just crashed, we assume more losses are coming. This emotional rollercoaster can result in irrational buying and panic selling.

Final Thoughts

Investor psychology can be a bigger threat to wealth than inflation, fees, or even recessions. The good news? Awareness is the first step. By working with a financial advisor, building a long-term plan, and having the discipline to stick to it, investors can avoid these traps and let time and compounding do their work.