Psychology of Losses in Money

Losing money activates fear and pain in the brain, according to Dr Ben Seymour from the Wellcome Trust Centre for Neuroimaging at University College in London. When research participants lost money through gambling, the area in their brains normally associated with fear and pain was triggered. The same region allows the brain to predict imminent danger and activates defensive actions – leading Dr Seymour to conclude that there’s biological truth behind the clichéd phrase “financial pain.”

The brain’s ancient evolutionary system of motivation, fear, and pain has been hijacked by contemporary financial losses and gains. That is, we want to avoid losing money the same way we want to avoid experiencing pain because fiscal loss and physical pain are connected in our brains. Even just anticipating or thinking about losing money activates that region of our brains (the striatum). This is the psychology of money – or more accurately, the physiology of money.
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If you want to participate in the stock market, you will have no choice but to accept the fact that you will at some points in the future encounter real losses or paper losses.

You have to live to overcome this psychology of money or physiology of money so that you will have a less painful investing journey.

Your first trade in a new stock will be the most painful one if you are hit with a paper loss after buying. But, if you have holding power, learn to relax, this paper loss is not going to kill or ruin your financial life.

Market goes up and market crashes down is a normal behavior of the market. If the market allows you to make reasonably good returns on your newest stock, do take it. With the realized profit in your pocket, then wait for opportunity to re-enter this stock again.

Your psychology of paper losses on this second trade will be less painful if the market turns against you. Continue to execute this strategy successfully and you will one day realize that you have overcome psychology of money – or more accurately, the physiology of money.