The Investor Is Hardwired to Be His Own Worst Enemy
At Prospera, we pay close attention not just to investment strategies, but also to the psychology that shapes how investors behave. A recent episode of The Long View podcast, hosted by Morningstar’s Christine Benz and Amy Arnott, featured Nick Murray, advisor and author of several books, including Simple Wealth and This Time Isn’t Different. Murray’s reflections reminded us of a core truth: the greatest obstacle to investment success isn’t the market or the economy, it’s the investor’s own behavior.
Murray put it plainly:
“The dominant determinant of real-life investor outcomes is neither the economy nor the markets, but investor behavior. The investor is hardwired to be his own worst enemy.”
1. The Price–Value Confusion
In everyday life, lower prices mean greater value. We look for sales, wait for discounts, and flock to Black Friday or Cyber Monday promotions because we intuitively know we’re getting more for less.
But investing reverses this logic:
- When stock prices fall, investors see more risk, not more value.
- When stock prices rise, investors see more potential, not less.
As Murray puts it:
“The entirety of the United States shops on Black Friday because prices are lowered… except in one thing. And of course, it’s investments.”
This inversion of logic leads to destructive behavior: buying high in euphoria and selling low in fear.
2. Crises Always Feel Different
History shows that markets regularly endure painful setbacks: the dot-com collapse, the global financial crisis, the COVID crash, tariff shocks, inflation spikes, and more. Each crisis has its own trigger, and each feels “unprecedented” in the moment. That uniqueness fuels the belief that this time really is different.
Murray warns against this mindset:
“The essential human response, the four-word death song of the equity investor is ‘this time it’s different.’”
The reality is that while every crisis looks unique, the pattern of recovery is remarkably consistent. Markets rebound, innovation reasserts itself, and long-term growth resumes. Yet because of human wiring, investors often panic out of equities just before the rebound begins.
Client Story #1: In March 2020, during the steep COVID downturn, one client was ready to move everything to cash, fearing that the world economy would collapse. By holding steady to their long-term plan instead, that same client recovered losses within months and ultimately saw their portfolio grow to new highs. The “uniquely bad” crisis was painful in the moment, but discipline made all the difference.
3. Emotions Override Rational Plans
Even with a carefully crafted plan, emotions often take control:
- Fear → Panic selling in downturns.
- Greed/FOMO → Chasing hot sectors or bubbles.
This is why Murray argues that advisors add their greatest value not through forecasts or clever trades, but by keeping clients disciplined:
“You make a plan once. Assuming the goals don’t change, you never change the portfolio in reaction to the markets.”
At Prospera, we frame this as Plan Your Tranquility™. The plan (not the market cycle) is the compass. Our role is to keep clients aligned with their long-term goals even when emotions run high.
Client Story #2: In 2021, another client, was eager to load nearly all of his savings into a handful of fast-rising technology stocks. He worried about “missing out.” We encouraged him to keep those positions modest while maintaining a diversified portfolio. When those stocks later dropped sharply, he was grateful for the balance that preserved his wealth and kept his long-term plan intact.
4. The Psychology of Loss Aversion
Behavioral finance research (from Daniel Kahneman and Amos Tversky) shows that people feel losses twice as strongly as gains. This “loss aversion” means that a temporary drawdown, even one that is normal in equities, feels unbearable.
Murray often reminds clients and advisors that long-term equity investing comes with a cost:
“About every five years during your equity investing career… some howling typhoon will slam into the equity market and take it down by a third.”
These drawdowns are not anomalies, they are part of the price of admission for long-term compounding. Yet because investors are hardwired to avoid loss, they are tempted to abandon equities just when the best opportunities arise.
5. Why (Real) Advisors Matter
Because these instincts are so deeply ingrained, most investors cannot overcome them alone. Murray believes this is the essence of financial advice:
“There is no higher value function of a wealth manager than doing the things that people can never do unaided in bad markets.”
In other words, the real work of a fiduciary advisor is coaching clients through their worst instincts. That means helping them avoid panic when markets fall and resist euphoria when markets soar.
At Prospera, this is central to how we serve clients. We don’t cheer when the market is up or panic when it’s down. Instead, we keep the focus on your plan, your goals, and the discipline required to achieve them.
The Takeaway
Nick Murray’s message is a sobering one: investors are hardwired to sabotage their own success. They confuse price with value, believe every crisis is different, and let emotions override rational plans. Left unchecked, these instincts drive poor decisions,and undermine long-term compounding.
But the flip side is empowering: with the right framework and guidance, investors can rise above their wiring. A clear plan, a disciplined portfolio, and a trusted advisor can help you act rationally when your instincts push you toward mistakes.
At Prospera, our mission is to provide exactly that kind of guidance. Because Plan Your Tranquility™ is about more than investing, it’s about giving you the confidence to navigate markets without being ruled by fear or fomo.
Disclaimer: This material is provided for informational purposes only and does not constitute financial, tax, or legal advice. Past performance is not indicative of future results. Please consult your own financial advisor, accountant, or attorney before making any decisions related to your personal finances.