Did you know that losing $1,000 has a greater psychological affect on us than making $1,000? It is called an aversion to losing money. Whilst we like to make money, we absolutely detest losing it. But loss aversion is more than just a preference for not losing money. It is much more profound than that.
Loss aversion is particularly evident when it comes to investing in the stock market. After all, aren’t we are told, time and time again, that investing in shares is one of the best ways of growing our wealth?
We are told that the expected return from investing in shares is overwhelmingly positive. Therefore, we expect to make money from it, come what may. And when we don’t, we are not only disappointed but some of us might even be positively incensed. We start to wonder what can possibly have gone wrong.
Point is, when we are in the midst of a bull market, we are more than happy...