Investors’ Psychology: Greed, Fear and Capital Market Traps

It is a widespread observation that greedy investors often break down their assets into a self-destructive pattern. This behavior can almost be regarded as a kind of universal law: greed – hubris – nemesis. Anyone who is guided by their arrogance and thinks they have everything under control runs the risk of being overwhelmed by their overconfidenceto embark on a fatal path. The overconfidence, also known as over confidence, can lead investors to choose risky strategies without correctly assessing the possible consequences. This arrogance is often the beginning of a downward spiral that eventually ends in a divine punishment – a return to balance, which puts reality right back into place. There isObserve that the consequences of these hubris often occur in the form of dramatic losses that ultimately punish investors’ excessive self-confidence. It is a kind of law of nature: if you feel too safe, you will be taught otherwise.

The opposite: anxious investors and their risks

But the opposite side of the coin is just as widespread. Many investors, instead of giving in to their greed, are driven by deep-seated fear. In times of crisis, they try to avoid losses by quickly liquidating their assets, which often harms them. This fear of losses causes investors to panic and give up their positions prematurely beforethe markets have recovered. The result is often an increase in losses because you make wrong decisions at a moment of uncertainty. The fear drives them to repel their investments too early or to flee into supposedly safe but actually little yielding investments. This behavior is a typical wrong decision based on loss aversion – theFear of suffering losses before they actually occurred. It is a human weakness that can permanently worsen the financial situation if you don’t consciously resist it.

The backward-looking thinking: nostalgia as a wrong way

A frequent pattern that leads to bad decisions is the longing for the supposedly good old days. Many investors dream that everything will be the same as before when interest rates only rise again. This backward thinking is understandable, but extremely dangerous. It is based on wishful thinking and misleads. The idea that by returning toold interest rates can regain prosperity, ignores the actual market mechanisms and long-term framework conditions. Investors who long for the past often develop a wishful thinking based on false assumptions. They believe it’s only a matter of time before interest rates rise again and that they will then benefit safelycould. But the reality is different: interest rates are historically low today due to various economic factors, and negative real interest rates – i.e. losses after inflation – are the rule. Instead of focusing on the facts, these investors build on wishful thinking that misleads them and undermine their responsibility for their own financial future.

The illusion of higher interest rates: an inappropriate nostalgia

Looking at historical development, it is evident that higher interest rates have rarely been realized in the past in the long term. In the 1970s, the average interest rate for safe investments was around 4.4%, while inflation was just under 6%. This led to real losses for savers who had their investments in risk-free products. Even after taxes andCosts could hardly be achieved with a positive inflation-adjusted return. Negative real interest rates have been the norm over the decades. These facts refute the romantic notion that everything was better in the past. The supposedly “good old days” was often associated with high losses, which were only veiled by tax evasion or hidden taxes. The reality is thatSaving in safe investments is just as little risk-free today as it was then, only the framework conditions have changed. The nostalgic demand for high interest rates is therefore an illusion that only leads to bad investments.

The wrong way to find alternative facts

Trying to find alternative facts is an expensive trap. A current example is the scandal surrounding a large landlord of shipping containers, which promised investors a risk-free, inflation-free return. In the end, this strategy proved to be highly risky and resulted in significant losses. Such offers are seductive because they conceal the basic problem: thereNo risk-free returns unless you are willing to forgo your safety. The providers of these supposedly safe strategies rely on complexity and lack of transparency to conceal the risks. They present products with names like “market neutral” or “alternative”, but at the core they are mostly non-transparent constructions that hardly anyone really understands.The cost of such products is often surprisingly high because they are justified by the risks taken. These risks are often only compensated for by the willingness to accept significantly higher losses. The fee models are often characterized by a combination of fixed fees and performance-related commissions – so-called “two and twenty” – what theConflicts of interest are additionally exacerbated. Behind the scenes, there is a close network of interdependencies between consultants, banks and shareholders, which often harms investors. There is a risk that risky products will be sold to self-managed funds that will later end up in hedge fund strategies – a practice that only provides the profits of the providers, but not the security of investorshas in mind.

The desire for the perfect solution: safety at all costs

The human desire for a safe, risk-free return is understandable, but insane. With zero interest rates, even a yield of 3% is still comparatively high. But if you only rely on supposedly safe strategies, you run the risk of ending in monocultures and non-transparent risks. The illusion of protecting the assets through security often leads to the exact opposite: losses,which are hardly predictable. The supposed security is in fact a deception that can only be maintained by taking higher risks. Those who rely exclusively on defensive strategies are in danger of losing their assets through ignorance and blindness to the actual risks. It is a fatal misjudgment, security at any costsearch In truth, risks are necessary to generate returns. The desire for the perfect, risk-free investment is an illusion that only exists in theory. In practice, it inevitably leads to monocultures, non-transparent risks and ultimately to damage to one’s own assets. The lesson is clear: pride and arrogance before market mechanics are always punished. theThe only sustainable strategy is to consciously bear the risks, deal honestly with the actual dangers and invest sensibly. This is the only way to preserve and increase assets in the long term.