Investment Principles Learned from Failure #002
What You’ll Learn in This Article
Why cutting losses feels almost impossible for the human brain
The psychological trap behind the Break-even Bias
Why hope can become a dangerous emotion in investing
How experienced investors separate emotions from decisions
Have You Ever Been Unable to Press the Sell Button?
Imagine your investment is down more than 20%. Days turn into weeks. Then the stock finally begins to rebound. Instead of asking, “What is the market telling me?” many investors ask, “How much longer until I get my money back?”
That single question changes everything. At that moment, you stop managing risk and start protecting your emotional attachment to the position. Most investors don’t stay trapped because they picked a bad company. They stay trapped because they become anchored to their entry price.
Why This Happens
Behavioral finance has studied this phenomenon for decades. Two psychological biases usually work together.
Loss Aversion
Human beings naturally feel the pain of losing much more strongly than the pleasure of gaining. Accepting a loss feels like admitting failure. As a result, many investors delay selling even when the evidence says they should.
Break-even Bias
Once an investment falls, our average purchase price becomes an emotional anchor. Instead of asking, “Would I buy this stock today?” we ask, “Can I just get back to break even?” The problem is simple: The market doesn’t know your entry price.
Real Portfolio Example
Average Cost: 3,634 KRW
Shares Held: 552
Rebound High: 2,770 KRW
Loss at the Time: More than 20%
Looking back, I realized something important.
I wasn’t following the market objectively.
I wasn’t measuring risk properly.
I was simply waiting for my purchase price to return.
My average purchase price became more important than the market itself.
Three Technical Signals I Ignored
After reviewing the chart objectively, three warning signs became obvious.
Rising Volume with Weak Momentum: Trading volume increased, but price struggled to continue higher. This suggested that upward momentum was weakening despite increased market participation.
Major Resistance Zone: The rebound reached a price area where previous investors were likely waiting to sell. Resistance doesn’t guarantee a reversal, but it increases risk.
No Clear Trend Reversal: The rebound looked encouraging, but there wasn’t enough evidence to conclude that the long-term downtrend had ended. Hope replaced objective analysis.
The Lesson I Learned
A losing position is not a problem by itself. The real problem is holding a position without a clear reason. A disciplined investor does not ask, “When will I recover my money?” They ask, “Is this still the best place for my capital today?”
The market rewards discipline, not emotional attachment.
Many investors may look at the later price movement and say, “See? Waiting worked.” But investing doesn’t work that way. The stock eventually moved higher. That doesn’t mean ignoring risk was the right decision. Good investment decisions should be judged by the quality of the process—not simply by the final outcome. Because in investing, good decisions sometimes produce bad outcomes, and bad decisions sometimes produce good outcomes. Long-term success depends on consistently following sound principles, not on getting lucky once.
One Question That Changed My Investing
Whenever I hesitate, I now ask myself one question: “If I had no position today, would I buy this stock at the current price?” If the answer is No, why am I still holding it? That question removes emotion and forces me to evaluate the investment objectively.
Quick Self-Check
Before your next trade, ask yourself:
□ Am I protecting my capital?
□ Or am I protecting my ego?
□ Would I buy this stock today?
□ Is my decision based on evidence or hope?
Key Takeaways
✔ Your average purchase price has no influence on future market movements.
✔ Hope is not an investment strategy.
✔ Position sizing and disciplined exits reduce emotional decision-making.
✔ Great investors don’t avoid losses. They avoid catastrophic losses.
Next Episode
Investment Principles Learned from Failure #003
How Should You Read Trading Volume?
Most investors only watch price. Professional investors pay close attention to volume because it can reveal changes in market participation and momentum. Price tells you what happened; volume often tells you why it happened.
🇰🇷 한국어 요약
이번 글에서는 투자자들이 손실을 확정하지 못하는 이유인 손실 회피 성향(Loss Aversion)과 본전 심리(Break-even Bias)를 살펴보았습니다. 저는 평단가 3,634원, 보유수량 552주인 종목이 약 2,770원까지 반등했을 당시, 리스크 관리를 다시 검토했어야 했지만 시장보다 평단가에 집착한 나머지 아무런 행동도 하지 못했습니다.
시간이 지나 주가가 더 상승했다고 해서 당시의 판단이 옳았던 것은 아닙니다. 투자는 결과가 아니라 당시의 정보와 원칙을 기준으로 평가해야 합니다. 이번 경험을 통해 제가 얻은 가장 중요한 원칙은 다음과 같습니다.
시장은 나의 매수가를 모릅니다.
하지만 내 감정은 그 숫자에 계속 집착합니다.
좋은 투자는 최고점에서 매도하는 능력이 아니라, 감정을 통제하고 리스크를 관리하며 시장에서 오래 살아남는 과정입니다.
Disclaimer
This article is based on my personal investing experience and is intended for educational purposes only. It should not be considered financial or investment advice. Always conduct your own research before making investment decisions.