Freedom Isn’t Free UK Personal Finance
Investing
The Art of Thinking Clearly: Finance Lessons
Losing £1,000 hurts roughly twice as much as winning £1,000 feels good. That single quirk of your brain costs UK investors more than fees, tax, and bad timing combined.
Five cognitive biases that wreck portfolios
| Bias | What it does | Counter-move |
|---|---|---|
| Loss aversion | Hold losers, sell winners early | Pre-written rebalancing rules |
| Social proof | Pile into popular trades | Written investment plan |
| Confirmation bias | Ignore contradicting evidence | Argue the opposite case |
| Sunk cost | Throw good money after bad | Ask: would I buy this today? |
| Overconfidence | Overtrade, mistime market | Buy a global tracker, leave it |
Dobelli catalogues 99 biases. These five do most of the damage to investors.
Key takeaways
1
Loss aversion causes investors to hold onto losing stocks longer and sell winning investments too soon.
2
Social proof leads investors to follow the crowd, which can result in poor investment decisions.
3
Confirmation bias makes investors focus on information that supports their beliefs while ignoring contradictory evidence.