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Who Is the Investor's Greatest Enemy?

You might think it's the volatile market, cunning institutions, or sudden "black swan" events. But according to research by investment master Benjamin Graham (Warren Buffett's teacher) and countless behavioral finance experts, the answer might surprise you:

The investor's greatest enemy is himself.

That's right—it's the person you see in the mirror every morning. Sounds counterintuitive, doesn't it? Let me explain why we are often our own biggest obstacle on the investment path.

1. Uncontrollable Emotions: Greed and Fear

These are the most common and destructive internal foes.

Greed (Greed): When the market surges and everyone around you is bragging about their gains, do you feel the anxiety of "missing out" (FOMO)? You might then jump in when prices are already high, regardless of what the company actually does or whether its valuation is reasonable. You're just afraid of acting "too late." This is "chasing rising prices."
Fear (Fear): When the market crashes, the news is all bad, and your account is deep in the red, do you panic? Feeling like the world is ending, you fear losing everything. So, you might reluctantly sell off your high-quality assets right at the market bottom when prices are cheapest. This is "panic selling at lows" or "selling into a downturn."

See, we often buy when prices are highest (others are greedy, I get even greedier) and sell when prices are lowest (others are fearful, I get even more fearful). This runs completely counter to the basic logic of making money: "buy low, sell high."

An example: It's like shopping. A bottle of cola normally costs $3. When it's on sale for $1.50, we know we should buy more. But in the stock market, when a stock normally worth $30 drops to $15, we get scared and sell it immediately, afraid it might become worthless. Doesn't that seem odd? This is emotion at work.

2. The "Everyone's Buying It" Trap: Herd Mentality

Humans are social creatures. We're naturally inclined to follow the crowd because it feels "safe." In investing, this manifests as the "herd effect."

When a certain concept becomes wildly popular (like the metaverse a few years ago, or blockchain before that), media, friends, and colleagues are all talking about it. It feels foolish not to join in. So, many people jump in without a second thought. But crowds typically peak at the height of their frenzy, often leading to utter chaos afterward. When the hype fades, those who followed the herd are often the ones left "holding the bag" at the peak.

3. The "I'm Smarter Than the Market" Illusion: Overconfidence

Especially after some initial investment success, it's easy to fall into the "I'm a stock-picking genius" delusion.

You start trading frequently, trying to catch every market swing. The result? High transaction fees and more losses than gains (more actions mean more mistakes).
You become convinced of your judgment, only seeking out news and analysis that confirms your views (this is "confirmation bias"), while ignoring warnings about risks.

This overconfidence leads you to place heavy bets on high-risk investments without thorough research, potentially resulting in massive losses.

So, How Do We Overcome This "Enemy"?

Since the biggest enemy lies within, defeating him requires internal effort. Graham provided a classic metaphor in The Intelligent Investor: "Mr. Market".

Imagine you have a business partner named "Mr. Market." Every day, he comes to you with an offer to buy your shares or sell you his, naming a price.

This "Mr. Market" is emotionally unstable. Sometimes he's wildly exuberant and optimistic, offering ridiculously high prices to buy your shares. Other times, he's deeply pessimistic and depressed, offering to sell you his shares at fire-sale prices.

What should you do?

The answer: Treat him as your servant, not your guide.

When he is euphoric and quotes an absurdly high price, you can happily sell to him.
When he is despondent and quotes a "bargain basement" price, if you think the underlying business is sound, buy more from him.
If his quoted price doesn't make sense, simply ignore him and go about your business.

In plain terms, this means:

Establish rules and stick to them: Determine your strategy before you invest. This could be long-term investing, regular dollar-cost averaging, or setting clear stop-loss and take-profit levels. Make your decision-making process "systematic," not "emotional."
Focus on value, not price: Your focus should be on whether the company is fundamentally strong and profitable, not whether its stock price moved up 1% or down 2% today. As long as the company's intrinsic value hasn't changed, short-term price fluctuations are just "Mr. Market" having a mood swing.
Maintain contrarian thinking: When others are greedy, start being cautious; when others are fearful, dare to look for opportunities. Of course, this requires a deep understanding of your investment targets.

In summary:

The greatest challenge in the game of investing doesn't come from external forces but from the weaknesses of human nature deep within us. True growth lies in learning to peacefully coexist with your own emotions, biases, and impulses, and using rules and discipline to manage them. When you can effectively control the person in the mirror, you have conquered your greatest enemy.