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🎁 Special discount until January 5, 2026
“This is a masterpiece.”
—Morgan Housel, author, Psychology of Money
“Discover the extraordinary within yourself.”
—Manish Chokhani, Director, Enam Possess
The Internet is full of sources claiming that “almost everything you thought about investing is wrong.” However, far fewer are willing to help you become a better investor by revealing that “much of what you think you know about yourself is wrong.” In this series of posts on the psychology of investing, I will take you on the journey of the biggest psychological flaws that plague us and cause us to make stupid mistakes when investing. This series is part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund.
Peter Lynch ran the Magellan Fund from 1977 to 1990. For thirteen years, he was essentially a stock market superhero. Someone who invested $10,000 at the very beginning would have made $280,000 by the time they retired. His average return was about 29% per year, which is like finding a magic lamp.
But here’s the part that sounds like a paradox so absurd it borders on a joke: most of the people who invested in his fund lost money. It doesn’t seem possible, right? How can you lose money in a fund that gains so much?
The answer is simple and embarrassingly sad.
When the fund did well, people got excited and jumped at the top. But when the fund had a bad month or quarter (which happens to all funds), they got scared and sold everything at the bottom.
To put it bluntly, investors tried to use a twenty-year instrument to capture a twenty-minute feeling. You could call it Time scale confusion, which I think is the main reason why smart people do really stupid things with their money.
I have met countless investors over the years. In almost every conversation, I’ve noticed that most of the stress they feel doesn’t really come from bad ideas. It stems from a mismatch in their minds – a fundamental discrepancy between what they say they want and what they actually do. It’s like trying to measure how much a teenager has grown by checking his height every hour. If you do that, you will get frustrated and conclude that something is wrong. But if you just wait a year, the growth is obvious.
In the investing world, we’re all guilty of checking our “height” every hour. We say we are “long-term investors,” which sounds sophisticated. We tell our friends that we are building wealth over the next thirty years. But then we look at our phones at lunch and see that the market is down 2%. Suddenly our thirty-year plan disappears. Our hearts start racing. We let a little bit of noise on a random Friday afternoon ruin a plan that should have been decades in the making.
This is the first type of timescale confusion: judging a long-term dream with short-term emotions.
Now, like all the mistakes I’ve talked about in this series, it’s hard to blame ourselves for even the timescale confusion. After all, our brains are built for a different world, a world with tigers and other immediate, tangible threats. Evolution hasn’t given us a ‘wait and see’ button; it gave us a ‘run or fight’ button.
When you see your portfolio turn red, your brain thinks there is a tiger in the room. It doesn’t matter that the stock market has risen for decades straight. It only matters that you ‘lose’ this second, which feels like an eternity. This is why people sell at the bottom. They’re not trying to lose money; they’re just trying to make the scary feeling go away.
Then comes the other side of this confusion, which is even more insidious. This is when we take a short-term gamble that goes wrong and try to pretend it was always a long-term plan.
Let’s say you buy some good stocks because someone on social media said it was “the next big thing that no one is talking about.” You weren’t planning on keeping it forever; you just wanted to come back quickly to buy a new laptop. But then the stock crashes. You’re down 40%. Instead of admitting you made a bad bet and moving on, you suddenly start talking about the “future of the industry.” You tell yourself that you are now a “value investor.” You turned a short-term mistake into a long-term anchor because your ego is too bruised to admit you were wrong.
This is how people stick to bad investments for years. They use a long-term excuse to cover up a short-term failure.
We live in a world that makes this confusion worse every day. Thirty years ago, if you owned a piece of a business, you found out what it was worth by reading the newspaper once a week. There was a gap between you and the madness. Now that gap has disappeared. You have a casino in your pocket. Your phone sends you alerts every second. This constant flow of information makes us feel like we have to work all the time do something. It makes the present much more important than it actually is.
When you watch a movie frame by frame, you don’t know what the story is. All you see are flickering lights. But if you sit back and watch the entire two hours, the story makes sense.
Investing is the same. The daily price movements are just flickering lights. Long-term growth is the story. But our phones force us to keep staring at the pixels.
The reality is that the market is an efficient machine for taking money from people who don’t know what time is and giving it to people who don’t. If you can stay calm while everyone else acts like the sky is falling, you ultimately get paid for that calm.
It’s called a “risk premium,” but you can simply think of it as a “patience tax.” You are paid not to be a slave to your own lizard brain.
But being patient is boring. We are addicted to the ‘now’, and that addiction is incredibly expensive.
And it’s not just stocks. This behavior is also widespread when investing in mutual funds, which is said to be the ‘easy’ way to invest. When you buy a mutual fund, you’re essentially hiring a professional to do the hard work for you. You’re essentially telling them, “Here’s my money, please let it grow while I go live my life.” It’s a great system. But many people treat mutual funds like they are playing a video game. They look at which fund has performed the best over the past year and put all their money into it. If that fund then has a quiet six months, they get irritated and switch to another fund.
This is like trying to get somewhere faster by constantly changing lanes in a traffic jam (which, by the way, is not uncommon on Indian streets). Normally, the lane you just left starts moving as soon as you get out of it. In the end, you work twice as hard and get there twice as slowly.
The irony of mutual funds is that the people who do the best are often the ones who forget they even have an account. There’s a famous (though possibly legendary) story about a study that found that the best-performing investors were the ones who were actually dead. Their accounts sat there untouched and without any problems for decades. Because they couldn’t check their phones or panic sell during a recession, their money just sat there and worsened.
While we don’t have to be dead to be good investors, we should probably act like them a little more. We need to stop judging our investments based on their year-to-date returns and start judging them on whether they help us achieve a goal that is still ten or twenty years away.
If you find yourself getting anxious because the market is bad, or you’re tempted to buy something just because it’s “hot” right now, do yourself a favor and ask, “What’s the time frame for this decision?”
If you are saving for a house in ten years’ time, today’s red figures do not matter. They are literally irrelevant. And when you’re tempted to hold on to a bad investment just to save your pride, remember that time is your most valuable asset. Don’t waste five years trying to prove you were right about a one-week transaction.
Most of the pain in your wallet comes from the clock in your head being out of sync with the world. Fix the clock and the rest usually takes care of itself.
Stop trying to win the sprint when you’re actually running a marathon. The finish line doesn’t move; only you are.
Disclaimer: This article was published as part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund. All mutual fund investors must go through a one-time KYC (Know Your Customer) process. Investors may only deal with registered investment funds (“RMF”). For more information on KYC, RMF and the procedure for filing/redressal of any complaints, please visit dspim.com/IEID. Investments in mutual funds are subject to market risks; read all fund-related documents carefully.
One goal. A better life.
🎁 Special discount until January 5, 2026
“This is a masterpiece.”
—Morgan Housel, author, Psychology of Money
“Discover the extraordinary within yourself.”
—Manish Chokhani, Director, Enam Possess
#Psychology #Investing #TwentyYear #Plan #TwentyMinute #Fuse #Safal #Niveshak