Winning the Mental Game
Investing can feel like a juggling act—whether you’re a professional or just trying to keep your family’s finances on track. The flood of data, numbers ticking up and down, and endless stream of opinions can leave your head spinning. You’d think it’s all about crunching the facts, but here’s the twist: your emotions are quietly running the show. Those sneaky “mind bugs” creep in—the “Fear of Loss” that makes a dip feel like a disaster, the “I’ve Got This” feeling after a fluke win, or “Following the Pack” into the latest craze. Maybe you’re “Stuck in the Past” eyeing old prices or “Seeing What We Want” in the hype. Sure, we aim to control risk with logic, but winning the mental game is the real secret to smart decisions—and a calmer ride ahead.
To win the mental game, it is important to be able to identify biases that may be influencing your decision before committing. You may not be able to control exactly how an investment can perform, but you can control your decision-making process.
1. Fear of Loss (Loss Aversion)
Why is it that losing feels worse than winning feels good? You make $100, smile, and go along with your day. You lose $100 and are thinking about it constantly. Now picture your portfolio— a 10% jump feels nice, but a 10% drop? That’s a pit in your stomach, urging you to sell before it worsens. Welcome to loss aversion, the mind bug that turns fear into panic selling. So, how can you combat this? Don’t panic. As the saying goes: “cooler heads will prevail.” Take a step back and ask why the loss has occurred. Once you have a why, you can determine if your initial feeling of panic is justified. From there, you can make a more rational decision instead of being reactionary. As many studies have shown, panic selling, even if markets drop further, is a destroyer of wealth.
2. I’ve Got This (Overconfidence Bias)
The best way I can describe this bias is relating it to my golf game. Put me on a driving range and I feel like Tiger Woods. As soon as I get to the first tee box, it is like I have never swung a club before. In investing, overconfidence often arises when a successful or fortunate decision yields a substantial return, leading investors to anticipate continued success. Just like golf, it is important to savor the win, but don’t bet on an encore. When you are ready to make that next “win big” trade, ask yourself if you are you riding the high or making a rational decision. Because that big win could easily be gone after that next big loss.
3. Following the Pack (Herd Mentality)
In society, non-conformity triggers a fear in most people’s psyche, whether that’s fear of missing out or fear of being different. Conformity is comfortable because moving in lockstep with everyone else creates a relatable experience in both the good and the bad times. For example, you are scrolling through social media or watching the news and see everyone buzzing about this new hot stock. You now become inclined to buy this company because it seems like you might be missing out on the next big thing. This temptation to follow the pack is better known as herd mentality. I would argue that following the herd is not necessarily a bad thing so long as there is reason behind it. I often think of what Warren Buffett once said when evaluating this bias: “It is wise to be fearful when others are greedy and to be greedy only when others are fearful.” Now, this was never meant to be a hard rule because fighting market forces is an uphill battle. It’s meant to be a simple reminder to not just blindly follow the herd but stop yourself and ask why.
4. Stuck in the Past (Anchoring Bias)
Being stuck in the past can affect any decision we make in life. The feeling of nostalgia or reminiscing about how something once was is another mind bug that can lead us to make decisions that don’t reflect current circumstances. In financial markets, it is very common to own something solely because we remember how great it was and think that will always be true. This is called anchoring bias. There are some great examples of this with classic blue-chip stocks which were once great, but over the last decade, or even two, have done little to nothing. We remember buying a stock at $50 ten years ago. We see the same stock at $45 today, must be a great time to buy more, right? That thought is anchoring decisions on the past without considering why the stock is at that price again. It is important to acknowledge this bias when buying based on price or holding something because you’ve always held it. Challenge yourself to judge a stock by today’s reality, not yesterday’s glory.
5. Seeing What We Want (Confirmation Bias)
An important part of life is having a belief system that helps drive our decisions. Ideally, as life goes on our beliefs get fine-tuned and evolve as we experience more and meet others with different perspectives. However, whether it’s in life or in investing, we can get tunnel vision and only see what we want in what is in front of us. Enter confirmation bias. In the world of investing, this bias may lead us to seek out and prioritize information that aligns with our pre-existing beliefs about a stock, market trend, or economic forecast, while dismissing or downplaying contradictory evidence. For example, an investor bullish on a particular company might focus on glowing earnings reports and optimistic analyst predictions, ignoring red flags like rising valuations or regulatory challenges. This selective perception can create a dangerous echo chamber, reinforcing flawed strategies and blinding investors to possible risks. Over time, confirmation bias can erode portfolio diversification, amplify losses, and hinder objective analysis, making it a silent saboteur of wealth-building. To mitigate this bias, it is important to challenge your own beliefs and assumptions in order to develop an objective opinion.
So, what’s the bottom line? If you can win the mental game by removing the biases and emotion from investing, reason will prevail. It’s about silencing the noise—whether it’s the panic of a dip, the lure of the crowd, or the thrill of a quick win—letting calm, clear logic lead the way. At WFS, that’s our daily mission: controlling what we can, tuning out the chaos, and zeroing in on the right investments to shape your future. A disciplined mindset creates the foundation for achieving sustained financial prosperity.
West Financial Services, Inc. (“WFS”) offers investment advisory services and is registered with the U.S. Securities and Exchange Commission (“SEC”). SEC registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the firm has attained a particular level of skill or ability. You should carefully read and review all information provided by WFS, including Form ADV Part 1A, Part 2A brochure and all supplements, and Form CRS.
This information is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product, security, or concept. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. You should not treat these materials as advice in relation to legal, taxation, or investment matters. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisers.