Discover the psychological trap of myopic loss aversion. Learn why legendary investors suggest taking “sleeping pills,” and see my personal trick to stop checking stocks.
Introduction
Hello, this is CY. Welcome back to My FIRE Journey.
In our last post, we explored how our fast, emotional brain (System 1) causes us to make terrible investment choices, like buying a bad stock just because everyone else in the office is buying it. At the end of that post, I warned you that checking your stock app every day is actually making you poorer.
Today, let’s uncover the scientific reason behind that statement. We will look at another powerful psychological trap discovered by behavioral economists, and I will share my personal, real-world trick to protect my peace of mind and my money.
The Pain of Losing is Twice as Strong
Let me ask you a simple question: How many times did you check your stock market app today? Once? Five times? Every hour?
If you are constantly looking at your stock prices, you are quietly torturing yourself. To understand why, we need to return to the brilliant psychologist Daniel Kahneman and his research partner, Amos Tversky. They discovered a fundamental truth about human nature called “loss aversion”.
Imagine I offer you a coin flip. If it lands on tails, you lose $100. If it lands on heads, you win $150. Would you take this bet? Most people say no. Even though the math is in your favor, humans are biologically wired to hate losing. Kahneman and Tversky proved mathematically that the psychological pain of losing is about twice as intense as the joy of winning the same amount.
In other words, losing $1,000 feels twice as bad as making $1,000 feels good. This biological condition of loss aversion completely controls how we react to the stock market.
The Danger of “Myopic Loss Aversion”
Now, let’s combine this loss aversion with your habit of checking your smartphone.
Over the long term, the stock market generally goes up. But in the short term, stock prices are incredibly volatile. If you check your portfolio daily, there is roughly a 50-50 chance that you will experience a loss on any given day.
If you check your app every day for a month, you might see 15 days of gains and 15 days of losses. But because the pain of a loss is twice as strong as the joy of a gain, those 15 losing days will completely crush you emotionally. Behavioral economists Richard Thaler and Shlomo Benartzi call this combination of loss aversion and frequent checking “myopic loss aversion”.
By looking at your screen too often, you maximize your own emotional suffering. You will feel like a terrible investor, even if your total balance has not changed! This pain eventually becomes too much to handle, causing you to panic and sell your great stocks at the exact wrong time. In a remarkable series of experiments, psychologist Paul Andreassen showed that investors who received frequent news updates on their stocks actually earned half the returns of investors who got no news at all.
Benjamin Graham, the father of value investing, offered a great metaphor for this. He said to imagine you have a business partner named “Mr. Market”. Mr. Market is emotionally unstable. Every day, he knocks on your door and offers a different price for your business. Some days he is euphoric, and other days he is depressed. Graham warned that you should never let Mr. Market’s daily mood dictate your own emotions. When you open your stock app every day, you are inviting crazy Mr. Market into your living room.
The “Sleeping Pill” Investment Strategy
André Kostolany, one of the most famous and successful investors in European history, understood this psychology perfectly. He once gave a brilliant piece of advice: “Buy good stocks, take sleeping pills, and do not look at the papers for many years. When you wake up, you will be rich.”
Kostolany knew that the stock market is essentially a roller coaster of human emotions. If you stay awake and watch every twist and turn, you will eventually throw up and jump off the ride. The less you look, the more money you make.
The Real Estate Secret: A Forced Sleeping Pill
Do you know how expensive apartments are in Korea? Especially in Seoul. When I lived in Malaysia as an expat, my beautiful two-story house with a private swimming pool was actually cheaper than a standard three-bedroom apartment in Seoul. Of course, real estate prices aren’t determined just by size, but the current housing market in Korea is staggering. Even if you graduate from a top university and get a great corporate job, it is almost impossible to buy a house in Seoul purely by saving your salary.
I am not saying this to brag, but let me share a personal story about my own real estate investment.
Until my first child was born, I didn’t own a home. With a baby on the way, my wife and I decided it was time to buy a small apartment. I didn’t overanalyze the market timing; I simply chose a place with a nice park for walking and a good hospital nearby. It was a small house, but our family was completely satisfied.
Then, suddenly, my company ordered me to transfer overseas. Within three months, my entire family moved to Malaysia. Because the relocation was so sudden, I couldn’t even sell the house. Since we only visited Korea once a year, I just held onto the property without thinking much about it.
When I returned to Korea five years later, the price of that apartment had doubled. Today, it makes up the absolute largest portion of my net worth.
Again, I am not telling you this to show off. This experience taught me a profound lesson: This is exactly what taking a financial “sleeping pill” looks like.
Looking back, the location I chose was fundamentally solid—it was a “blue-chip” asset. But more importantly, because I was living thousands of miles away and knew we would eventually return to that one house, I became completely numb to its daily price fluctuations. That forced patience, driven by physical distance, turned into a highly profitable long-term investment.
Why can’t we do this with stocks? When we buy stocks, we rarely do the careful, deliberate research we do when buying a house. Furthermore, because the transaction costs for stocks are so incredibly low and the “Sell” button is just a click away on our smartphones, we constantly trade in and out.
If we treated buying a stock exactly like buying a house—carefully selecting a great asset and then refusing to look at its price for five years—we would all be wealthy. But human psychology makes that incredibly difficult. That is why we must intentionally build a system that protects us from our own bad habits.
My Personal Hack: Conscious Distraction
Kostolany’s advice is great in theory. But in today’s world, where we carry powerful computers in our pockets, simply telling you to “stop looking” is not helpful. Checking your phone becomes a deep, automatic habit. You are bored on the train, or waiting for a coffee, and suddenly you feel an uncontrollable urge to know what your money is doing right now.
I experienced this exact same problem during my early FIRE journey. I found myself opening my stock app like a mindless robot. But I knew I couldn’t just delete the app because I needed it to make my regular monthly ETF purchases.
So, I developed a personal system based on habit psychology. When that sudden urge to check my stock app hits me, I consciously force my brain to think about something else. I deliberately distract myself. I read a news article about sports, open a book, or simply stand up and drink a glass of water.
At first, this requires a lot of willpower. But here is the amazing thing: if you consciously avoid the urge just a few times, the habit loop starts to break. You realize that nothing terrible happened to your life just because you didn’t check the market today. Gradually, the intervals between my checking became longer and longer. I went from checking five times a day, to once a day, to once a week, and now I barely look at it at all.
I also use a physical trick. I took the stock trading app and moved it to the very last screen of my smartphone. Then, I put it inside a random folder filled with utility apps I never use. It takes me several swipes and clicks to find it. Out of sight, out of mind. I made it as inconvenient as possible for my fingers to find that app.
Conclusion: Protect Your Peace of Mind
Your ultimate goal is not to beat other people in the market; your goal is to buy back your time and achieve financial freedom. To do that, you must protect your own peace of mind.
Follow the advice of the legends. Buy outstanding companies or broad ETFs. Take a metaphorical sleeping pill. Consciously distract yourself when the urge to check arises, and hide that app deep inside your phone. Your future wealthy self will thank you for sleeping through the noise.
In our next post, we will explore another fascinating psychological trap. Read [Part 3: Why Wall Street Experts Can’t Beat a Coin Toss] to find out why you should never trust the “experts” on Wall Street TV shows.