The Psychological Trap That Cost Me $20K (at least)

Why the biggest threat to your portfolio isn’t the Fed—it’s you.

Let’s review 2025 so far.

• February: I escaped the 1% prison and reallocated to a mix that was driven by a model portfolio I was trying to follow.
• It was ~50% precious metals, split between gold and silver and some individual mining stocks.
• The rest was individual energy stocks and a leveraged inverse ETF on NASDAQ
• The strategy involved a highly technical wave analysis strategy that I respect but find hard to reproduce in a way I can get comfortable.
• I discovered levered inverse ETFs can be very volatile. I made money trading but lost a lot of sleep.
• Same with silver: it moves in a different way to gold because of its industrial use cases. Tariff concerns impact the price. I traded in and out, used inverse ETFs to escape the worst, but took a beating anyway. That cost my $20k I would not have lost had I simply held.
• I can’t own individual stocks unless I understand them. I feel obliged to do the work of underwriting them. I don’t have time for that, so I sold them.
• TLDR: I concluded I needed a different approach. I cut my losses, kept the gains, swore off inverse, levered ETFs and trading generally.
• I outline the strategy I have been following since then in a previous edition of this newsletter.

I sleep better and have a more balanced approach.

• Unless you are a great trader, staring at the red and green urging both to go in ‘your’ direction is a foolish way to spend your time.

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The Real Problem: You’re Too Smart for Your Own Good

Most people think investment losses are due to poor asset choices.

But if you’re reading this, your biggest threat isn’t stupidity—it’s behavioral bias.

You’re smart. You read the right things. You try to time it just a bit better.

And that’s what screws you.

Let me show you the four silent killers lurking in your head:

1. Recency Bias

You assume what just happened will keep happening.

If markets drop 3 days in a row, you expect a crash.

If Bitcoin pumps, you FOMO in.

This makes you chase highs and sell lows—the exact opposite of what works.

2. Loss Aversion

You feel a $1,000 loss twice as painfully as a $1,000 gain.

So you’ll hold losers hoping they recover and sell winners too early to “lock in” gains.

You become emotionally attached to outcomes, not strategies.

3. Overconfidence

You think you can outthink the market.

You believe this time you’ll sell at the top and buy at the bottom.

Most pros can’t do this. What makes you so special?

4.  Confirmation Bias

You only seek opinions that agree with your existing view.

Bullish on gold? You read gold bulls. Bearish on stocks? You ignore good earnings data.

It feels good to be “right” in your echo chamber—until reality hits.

The Solution: Systems, Not Feelings

Professionals don’t rely on emotional judgment.

They rely on systems—rules, processes, and review cycles.

Here’s what I now do:

• I track allocation in a simple dashboard
  
• I review my portfolio every 30 days, not daily
  
• I log every trade I make and the reason why
  
• I rank my emotional confidence in the trade (1–10)
  
• I don’t trade outside of my plan
  

Do I still make mistakes? Of course.

But they’re fewer. Less expensive. And easier to learn from.

What You Can Do Right Now

1. Create your Investor Operating Manual
   Write down your rules: asset mix, rebalancing dates, allocation limits, and emotional triggers.
   
2. Track decisions in a journal
   Note why you bought or sold something. It’ll expose your patterns.
   
3. Talk to people who challenge you
   Not everyone in your circle should agree with your outlook. That’s how you grow.
   

Final Thought

Markets are complex. But your brain is worse.

The best investors aren’t the smartest. They’re the most disciplined.

They know the enemy isn’t inflation or China or Powell.

It’s themselves.

Ready to Build a System That Works?

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