25 – Investor Psychology: How to Keep a Cool Head and Win in the Long Run

Lesson 25 – The Best Free Finance Course in History

In this lesson, we'll discuss how investor psychology is key. We'll look at how to keep a cool head in difficult times and thus be successful in the long run.

Course index:

1. Basic Concepts of Money and Personal Finance
   Introduction to the value of money, the importance of saving, and spending control.
2. Budgeting and Financial Planning
   Create a personal budget, manage income and expenses, and set financial goals.
3. Inflation and Purchasing Power
   Explanation of how inflation affects the value of money over time.
4. Interest Rates and Time in Finance
   Differences between simple and compound interest rates and their importance in investments.
5. How to protect your savings. Protect yourself from scams.
   How to protect your money from the scams that abound today
6. Basic Savings Instruments
   Explanation of savings accounts, term deposits, and how they work.
7. Introduction to the Stock Market
   Basic concepts of the stock market and its role in the global economy.
8. Actions: What They Are and How They Work
   Explanation of stocks, types (common and preferred), and how to invest in them.
9. Bonds: What They Are and How They Work
   Differences between corporate and government bonds, and their importance in diversification.
10. Risk vs. Return on Investments
    Concept of risk and how it affects investment choices.
11. Diversification and Creation of Basic Portfolios
    Basic diversification principles to reduce risk in an investment portfolio.
12. What is an ETF and How Does it Work?
    Introduction to ETFs (exchange-traded funds) and how they track market indices.
13. What is a Mutual Fund?
    An explanation of mutual funds and their benefits for beginners.
14. Financial education for the family
    All the information you need to make ends meet.
15. Economic Cycle and its Impact on Investments
    How the stages of expansion and contraction in the economy affect investments.
16. Growth Stocks vs. Value Stocks
    Learn about different types of actions and what to expect from each one.
17. Fundamental Analysis of Stocks
    Explanation of how to analyze a company's value based on its fundamentals.
18. Basic Technical Analysis: Charts and Patterns
    Introduction to basic technical analysis tools, such as trend lines and candlestick patterns.
19. Options: What They Are and How They Work
    Basic concepts of call and put options and their uses in investments.
20. Futures: What They Are and How They Work
    Introduction to futures contracts and their application in investment and speculation.
21. Introduction to Cryptocurrencies
    What is digital money, how it was created, and the characteristics of Bitcoin and other cryptocurrencies.
22. Blockchain and its Importance in Finance
    How the technology behind cryptocurrencies works and their applications in finance.
23. Risks in Cryptocurrency Trading
    Volatility, fraud, and regulations in the cryptocurrency market.
24. Leverage Principles and its Risk
    What it means to trade with leverage and the associated risks.
25. Investor Psychology and Emotion Management
    How emotions influence investment decisions and tips for managing them.
26. What is Algorithmic Trading
    Basic explanation of the use of algorithms to perform operations in the financial market.
27. Financial Analysis of Companies
    Introduction to basic financial statements and their interpretation for valuing companies.
28. Investing in Commodities: Gold, Oil, and Other Goods
    How commodity investments work and their role in diversification.
29. Advanced Investment Strategies: Hedging and Derivatives
    Introduction to strategies for managing risks through financial derivatives.
30. Creating and Managing a Complete Portfolio
    Practical application of prior knowledge to build and manage a diversified portfolio.

Investing isn't just about numbers, charts, and analysis; it's also a battle with your own mind. Investor psychology and emotion management are key to staying ahead in the market., especially in a place like Argentina, where the economy is a constant roller coaster. Emotions can lead you to make decisions that ruin your savings in a flash, but if you know how to manage them, you can take advantage of even the worst crises.

In this lesson, I'll explain how psychological biases work, what you can do to avoid impulsive decisions, why a strategy is essential, the advantages of long-term investing with fundamental analysis, and how recent crises (such as the dot-com, subprime, and coronacrash) have taught us valuable lessons. We'll also delve into what a stop-loss is, why it's more useful for traders than for long-term investors, and how to use it properly. All in a clear and relaxed tone, as if we were sipping mate in the plaza.

Why is investor psychology so important?

When you invest, you think it's all about calculating well, choosing the right stocks, and that's it. But it's not that easy. Your head plays a huge role in every decision you make.Emotions like fear, greed, euphoria, or stress can make you act without thinking, and that's a problem. For example, when the blue dollar spikes in Argentina, many panic and sell everything to buy dollars, even if it's not the best time. Or when the market is rising, some rush to buy anything out of pure enthusiasm, without analyzing anything.

Emotion management is learning to control those impulses to make rational decisions.It's not about not feeling anything, because we're human, but about not letting your heart or panic rule your wallet. In a country like Argentina, where inflation, devaluation, and political changes constantly keep us on edge, managing your emotions is more important than ever. If you don't, you could lose everything you saved on one bad day.

Common psychological biases in investing

Psychological biases are like traps your brain sets for you. They are thinking errors that lead you to make bad decisions without realizing it.Here I explain the most common ones that affect investors, with examples so you can see them in action:

• Anchoring effect: This happens when you stick to an initial price and don't let go, even if the market says otherwise. For example, if you bought a YPF share at 100 pesos and it drops to 80, you think it's cheap just because it was worth more before., but you don't look at whether the company is actually doing well. In Argentina, with stocks that fluctuate wildly, this bias can cause you to miss opportunities or end up in pitfalls.
• Loss Aversion: This is one of the strongest. You are so afraid of losing money that you prefer to do nothing or sell quickly, even at a loss.For example, if a stock drops by 10%, you sell it for fear it might fall further, but then it rises by 30%. In Argentina, where inflation makes us want to protect every peso, this bias is extremely common.
• Confirmation Bias: Here you're just looking for information that confirms what you already think. If you believe Bitcoin is going to go up, you'll only read the positive news and ignore the danger signs.In Argentina, with the crypto boom, many fell into this error and ended up buying at the peak.
• Overconfidence: This is thinking that you are a genius and that you will always be right. You send yourself with more money than you can handle, because you think you have everything under control.But the market is unforgiving, and one mistake can ruin you. In Argentina, many young people starting out in the stock market fall into this bias, especially with crypto trading.
• Herd Behavior: Here you do what most people do, without thinking about whether it makes sense. If everyone is buying a stock or a memecoin like Shiba Inu, you'll join in too, even if you don't know why.In Argentina, with the crypto and tech stock boom, this bias led many to buy at the worst possible time.
• Availability Bias: This happens when you make decisions based on the first thing that comes to mind. If you heard that a friend lost everything in the stock market, you are afraid to invest, even if the market is doing well.In Argentina, where bad economic news is a daily occurrence, this bias holds us back a lot.

Recognizing these biases is the first step to not falling into them.If you understand how your mind works, you can start making more rational and less impulsive decisions.

Tips to avoid emotional decisions in trading

Making decisions based on emotion is the biggest mistake you can make when investing. Here are some practical tips to help you stay calm and not let your heart betray you.:

• Make a clear plan before investing: Define how much you are going to invest, in what, and for how long. If you already have a marked path, you will not improvise when the market turns ugly.For example, if you decide to put only 10% of your money into crypto, you're not going to put it all in out of panic or greed.
• Take breaks when you're stressed: If you find the market making you nervous, stop for a while. Go for a walk, have a mate or watch a seriesThe decisions you make with your heart racing are often the worst. In a country where economic turmoil is always a constant, these pauses are golden.
• Keep a trading journal: Write down every operation you do and why you did it. This helps you see if you acted out of logic or emotion.For example, if you sold a stock because you saw bad news, but it went up later, you'll learn not to repeat that mistake.
• Practice with little at first: If you're just starting out, don't send all your money away. Use a demo account or invest small amounts to learn how to manage stress.In Argentina, many brokers offer demo accounts for risk-free practice.
• Avoid looking at the market all the time: If you're glued to the screen watching every up and down, you're going to go crazy. Define specific times to review your investments, such as once a day or once a week. This helps you avoid reacting impulsively.
• Get a second opinion: Talking to a friend who understands investments or an advisor can give you perspective. Sometimes an external look takes you out of the emotional loopIn Argentina, where we all have a cousin who “knows the stock market,” this can be useful if the cousin is really clear about it. Or maybe it’s better to have a financial advisor.

What is stop-loss and how to use it correctly?

A key tip to avoid emotional decisions is to use a stop-loss, a tool that automatically takes you out of a trade if things go wrong. A stop-loss is a limit you set to sell your asset if it goes down more than you are willing to lose.It's like an emergency brake that protects you from panic and helps you carry out your plan without hesitation.

For example, imagine you buy a Mercado Libre share for 1000 pesos.You decide you don't want to lose more than 10%, so you set a stop-loss at 900 pesos. If the stock drops to 900, your broker automatically sells it, and you avoid losing more. This is extremely useful in trading because markets move quickly and you can't always keep an eye on them.

Stop-loss also saves you from yourselfIf the market starts to fall, fear can make you hesitate: "Should I sell now or wait?" While you're thinking, the stock could continue to fall, and you could lose more. With a stop-loss, you don't have to decide in the moment; you've done it before, with a cool head. In Argentina, where stocks can fall 15% in a day due to political news, this tool is a lifesaver.

But be careful, stop-loss is not for all styles.If you're a short-term trader, looking for quick profits in days or weeks, a stop-loss is perfect. It helps you limit losses and maintain discipline, especially in volatile markets like ours.

However, If you invest long-term, the stop-loss doesn't make much sense.Why? Because long-term investments are designed to withstand temporary declines. If you buy shares in a solid company like Galicia or Mercado Libre, and the market drops by 10%, you don't want to sell; you want to wait, because you know that company will grow in the long term. A stop-loss could get you out of the trade right at the worst possible moment, when the decline is just a passing noise.

For example, in the 2020 coronacrash, many stocks fell 30% in weeks.If you had a stop-loss and sold, you lost the chance to recover when the market rose again months later. On the other hand, those who invested long-term and rode the decline ended up winning. Stop-loss is a tool for traders, not for long-term investors., because trading seeks to take advantage of rapid movements, while long-term investing seeks sustained growth.

One more detail about the stop-loss: You have to know where to put it. If you put it too close to the current price (for example, a 2% down), any small drop can take you out of the trade, and that happens a lot in Argentina with volatility. If you put it too far away (a 20% down), it doesn't protect you as much. Ideally, you want to use a level that makes sense based on the asset and your risk tolerance.For example, if you know that a stock typically drops by 5% on normal days, set your stop-loss a little lower, like 7%, so you don't get out on a temporary move.

The importance of having a strategy

Investing without a strategy is like driving without a GPS in a city you don't know: you'll end up lost. A strategy is your roadmap, and it helps you stay on track when emotions hit you hard.In Argentina, where the stock market can be chaotic with inflation and political upheaval, having a plan is more necessary than ever.

A good strategy includes clear objectivesFor example, let's say you want to save for a car in five years, and to that end, you're going to invest 201P3T of your income in stocks and the rest in bonds. Also, consider a time horizon: Is it short-term (months), medium-term (a couple of years), or long-term (decades)? This helps you avoid despairing if the market goes down one day.

Set rules for entering and exiting the marketFor example, if a stock rises by 20%, sell to lock in profits; if it falls by 10%, exit to limit losses. This prevents greed from making you wait longer or fear from forcing you to leave early. In Argentina, where the stocks of companies like YPF and Mercado Libre can fluctuate widely, these rules are a lifesaver.

Diversify to reduce riskDon't put all your money in a single stock or sector. Divide it among stocks, bonds, cryptocurrencies, or even dollars, depending on your profile. In Argentina, with the economy so unstable, diversifying protects you from a hard blow.For example, if you're all in tech stocks and the sector falls, you're left with nothing; but if you have a little in bonds and a little in gold, the damage is less.

Review your strategy from time to timeMarkets change, and in Argentina more quickly than elsewhere. If the dollar soars or inflation spikes, adjust your plan to keep it meaningful. A strategy is not something you write and forget., it is something alive that adapts to reality.

Advantages of long-term investing with fundamental analysis

Investing for the long term using the fundamental analysis It's one of the most solid ways to grow your money without going crazy with emotions. Fundamental analysis is studying a company or asset in depth to see if it is worthwhile: you look at its profits, debts, revenues, the sector it is in and even the general economy.Instead of focusing on rumors or rapid increases, you focus on real value.

Here are the advantages of long-term investing with fundamental analysis.:

• Less stress from volatility: When you invest for the long term, the daily ups and downs don't affect you as much. You know that a solid company like Coca-Cola or Mercado Libre will continue to grow over the years., even if I have bad days. In Argentina, where the market can fall 10% in a week due to a political news story, this gives you peace of mind.
• You take advantage of compound interest: In the long run, your profits are reinvested and grow exponentially. If you invest 100,000 pesos and earn 10% annually, in 10 years you will have 259,000 pesos without doing anything else.In Argentina, with high inflation, this helps you beat price increases.
• You make decisions based on data, not emotions: Fundamental analysis forces you to look at real numbers, not rumors. If you study a company and see that it has low debt, stable income and a good team, you can trust it even if the market is nervous.This reduces the impact of emotional biases.
• You avoid market noise: In the long run, you don't worry about the daily news or mass panics. You focus on the real value of what you bought, not what Twitter says.In Argentina, where there's always economic drama, this helps you avoid impulsive reactions.
• You build sustainable wealth: Long-term investments allow you to build solid wealth. Companies like Apple or banks like Galicia, when well analyzed, can give you constant returns for decades.In a country where saving in pesos is impossible, this is key.

Fundamental analysis gives you a solid foundation for investing with confidence.In Argentina, where many people are burned out by following trends, this strategy puts you in a different league. Also, as we mentioned before, Stop-loss is not necessary for this approach, because you are willing to endure temporary declines, trusting that the real value of your investment will grow over time.

Lessons from recent crises

Economic crises teach us a lot about how emotions can destroy investors. Here I tell you about three recent crises that show how important it is to manage psychology.:

• Dotcom crisis (2000-2002): In the late 90s, everyone went crazy for internet companies. Tech startup stocks soared, and greed led many to invest without analysis.When the bubble burst, companies like Pets.com went bankrupt, and investors lost fortunes. In Argentina, which was already entering its own 2001 crisis, this was an additional blow to those who had jumped on the bandwagon.
• Subprime crisis (2008-2009): This was for fraudulent mortgage loans in the United States. Overconfidence and the herd effect caused banks and investors to pour money into assets that were worthless.When everything collapsed, the global market collapsed. In Argentina, the crisis hit hard because the country was already hard hit, and many who invested in foreign stocks lost everything.
• Coronacrash (2020): The COVID-19 pandemic sent markets into a tailspin in March 2020. Fear led many to sell everything, thinking it was the end of the world.But those who stayed calm and trusted solid companies saw the market recover quickly. In Argentina, with the currency controls and the local crisis, those who panicked sold regretted it when shares of companies like Mercado Libre rose again.

These crises show that emotions (greed, fear, panic) can ruin you.Those who survived were those who had a long-term strategy and didn't get carried away.

Suggested further reading:

Barron's Burning Up: The Shocking Prediction About the Dot-Com Bubble

Dot-com Bubble: 24 Years After Its Impressive Peak

The Incredible Story of Michael Burry, Who Saw the Subprime Crisis Before Anyone Else

https://elinversordebolsillo.com.ar/coronavirus-crash/

Real examples in Argentina

Let's look at some specific cases. Juan, a 28-year-old kid from Córdoba, He was overcome by fear during the corona crashHe sold his YPF shares at a loss because he thought everything was going downhill. A month later, YPF rose 40%, and he wanted to kill himself. If he'd had a strategy and controlled the panic, he would have come out ahead.

Another case is Maria, from Buenos Aires. In 2021, he got excited about memecoins and invested 100,000 pesos in Shiba InuWithout a strategy, he bought at the peak and sold when it fell, losing 70,000. A long-term strategy with fundamental analysis would have saved him from disaster.

How to manage stress when investing

Investing creates pressure, especially in Argentina. Stress makes you make quick and bad decisions.To manage this, try meditating for a few minutes before trading, talking to someone who understands, or limiting the amount of time you spend watching the market. Don't let trading consume you, because your mental health is worth more than any profit.

Our way of being has a lot of influence. In Argentina, we like risk and quick shortcuts., like in soccer or racing. We want the big goal now, and that leads us to invest without thinking. But in the stock market, patience is what wins. Learning to go slowly, like when you prepare a barbecue, is the key to not getting burned..

Final tips for investing wisely

To close, some tips. Know your biasesIf you're fearful, work on not selling too quickly; if you're greedy, learn to take profits without waiting. Build a solid strategy, whether short or long term, and stick with it even if the market tells you otherwise. Use fundamental analysis to invest for the long term, because it gives you a solid foundation to trust in your decisions.

Seek support when you need itAn advisor, a group of investors, or even a knowledgeable friend can give you perspective. In Argentina, where the stock market is a daily challenge, surrounding yourself with people who understand is a lifesaver. Ultimately, Don't forget to enjoy the processInvesting is a long journey, and if you approach it with a cool head, you can build something great.

Investor psychology and emotion management are as important as knowing how to read a chart.With discipline, a clear strategy, and a long-term focus, you can survive any crisis and grow your money, even in a country as crazy as Argentina.

Next course date

October 18, 2025. You will be able to access it with this link.

Questions for you to reflect on

Why is it so important to understand and be aware of investor biases?

What are the advantages of long-term investing compared to market fluctuations?

When is Stop Loss useful and when is it not?

A brief overview of The Pocket Investor

The Pocket Investor is a project that combines experience and passion for financial education to help you transform your relationship with money. Through personalized mentoringWe help you design investment strategies tailored to your goals and needs, optimizing your portfolio to address challenges like inflation and the dollar.

The books on finance and investment, including the popular The Argentine Pocket Investor - El Inversor de Bolsillo argentino, are practical tools that explain complex concepts in a simple way, bringing the world of investments closer to anyone interested in financial growth.

In addition, in the course The Pocket InvestorWe combine all this knowledge to offer you a complete experience: theory, practice, and strategies that truly work in the Argentine and global context. All this with a clear, friendly, and accessible approach, so you can achieve financial independence.

See more notes from our blog:

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