Part Two - The Psychology of Investing: How to Beat Behavioural Biases and Invest Smarter
- Eloise Bell
- Sep 10
- 4 min read
In part one, we looked at how our natural instincts can lead us to make poor investment decisions. Now let’s talk solutions. The good news? You don’t need to become emotionless; you just need a better process. Here’s how to stay disciplined, use tech tools effectively, and help your clients become the best asset in their own portfolio.
How to Break Bad Investing Habits.
The secret to investment success isn’t really a secret at all. It’s simple: stick with your winners, cut your losers. But like most things that are simple to say – cancelling your gym membership, switching energy provider, finally sorting out your pension – it’s much harder to do. And often the problem isn’t knowing what to do. It’s knowing when.
Investing is a bit like a triathlon. Markets change. Conditions shift. You’re swimming one minute, cycling the next, then suddenly running uphill into a headwind. And just like in a triathlon, the transitions matter. Pros don’t just train for the race; they practice the gear changes. Getting your wetsuit off and your bike helmet on quickly can shave off precious seconds that determine whether you finish near the front or fall behind. It’s the same with portfolios. The key moments, such as rotating out of a former winner and into the next opportunity, are where many investors come unstuck. These crossover points are emotionally charged. We hesitate. We second-guess. We cling to last year’s success story or get cold feet about making changes. But these transitions often make all the difference.
Is There a Better Way to Approach Investment Discipline?.
Fortunately, yes, and it doesn’t involve trying to rewire the human brain. The problem with investing isn’t a lack of intelligence. It’s a lack of discipline and process, which is where technology can play a huge role. By replacing gut instinct with clear rules and rigorous processes, we remove the noise and the guesswork. The hardest part of investing – knowing when to hold on and when to let go – becomes a disciplined, data-led decision. Not a battle of emotions in the middle of a market downturn.
At Clever, our tech-driven approach is designed to take human emotion out of the equation – to help investors stay the course, stick to the plan and avoid those classic behavioural traps that can cause long-term damage. We’ve pioneered an investment model that does exactly that. One that keeps portfolios on track through clear strategy, not spur-of-the-moment decisions. One that knows when to run winners and when to cut losers – without getting sentimental, shocked or distracted. Because in the end, investing well isn’t about being clever or being able to see into the future. It’s about being consistent. And with technology on your side, you can stop your clients from being their own worst enemy, and help them to become their portfolio’s greatest asset.
Don’t just trust the numbers – understand them.
Another behavioural trap investors fall into is misinterpreting data, or worse, being misled by how it's presented. Active fund managers are often judged on short-term underperformance against benchmarks, especially during certain market phases. Essentially, that’s like playing football in ice skates, if you’re holding a growth fund in a value-dominated market, it’s not that the fund is broken; it’s just not built for those conditions.
Much of the ‘evidence’ around active funds underperforming comes from passive providers or headline-driven research that doesn’t tell the full story. Timing and context are everything. The data doesn’t lie, but it can be misunderstood or misrepresented. Active funds outperform over the right cycles. The issue is often not the fund, but the investor. Switching in and out at the wrong moments, often driven by emotion, fear or media noise, is what causes long-term underperformance. It’s not a lack of intelligence, but a lack of discipline. Just like other behavioural biases, this one is avoidable with the right tools, processes and mindset.
Behavioural biases are part of being human, but they don’t have to dictate your investment outcomes. With the right structure, strategy and support, investors can overcome emotional hurdles and make confident, consistent decisions for the long haul.
Risk Warnings.
Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting portfolios. Investments may include emerging market, smaller company and commodity funds which may be higher risk than other asset classes. Investments in fixed interest funds are subject to market and credit risk and will be impacted by changes in interest rates. Changes in exchange rates may affect the value of the underlying investments. Investments in Property funds carry specific risks relating to liquidity. Property funds can go through periods, known as ‘gating’, when it may not be possible to trade in or out of the funds and to access your money during such periods. The portfolios may invest a large part of their assets in funds for which investment decisions are made independently of the portfolios. If these investment managers perform poorly, the value of the portfolios is likely to be adversely affected. Investment in funds may also lead to additional fees arising from holding these funds.
