How People Lose

  1. They personalize market losses.
    • It is easy to equate losing money in the market with being wrong. In doing so, you take what had been a decision about money (external) and make it a matter of reputation and pride internal). This is how your ego gets involved in the position.
    • You begin to take the market personally, which takes the loss from being objective to being subjective. It’s as if profits and losses were a reflection of their intelligence or self-worth.
    • External losses are objective facts, while internal losses are subjective and defined in terms of the individual experiencing it.
    • Market losses are external, objective losses. It’s only when you internalize and personalize the loss that it becomes subjective.
  2. Once a market position is personalized and it starts to show a loss, it is uncertain when or how it is going to end, leading a person to go through the five stages of internal loss while the loss gets larger.
    • Denial – Seeking second opinions and only listening to the ones that conform with your own denial
    • Anger – Getting angry at the market or others
    • Bargaining –  Bargaining to get out of the position if only it can go back to breakeven
    • Depression – Distancing yourself, losing interest in all things, unable to focus
    • Acceptance – Finally accepting and getting out of the position or getting forced out by margin calls