Visit our sponsors and get paid in your Paypal Wallet

Connect your email, and you’ll instantly get a CRM with enriched customer insights and a platform that grows with your business.

With AI at the core, Attio lets you:

Join industry leaders like Granola, Taskrabbit, Flatfile and more.

👉Try Attio Pro for free

Hey everyone,

I need to tell you about something I almost did last month that would've been really, really stupid.

I was scrolling through my feed, and I kept seeing these insane numbers. ETFs up 349%. Another one up 329%. People posting screenshots of their portfolios absolutely exploding. And I'm sitting there thinking, "What am I missing? Why am I not in these?"

That feeling—that FOMO, that "everyone's getting rich except me" panic—it's one of the most expensive feelings in investing. And I'm learning that it's designed to make us do exactly the wrong thing at exactly the wrong time.

Let me explain what I mean.

So I started digging into these top-performing ETFs everyone's talking about. European bank stocks. Semiconductors. US energy. Japanese equities. These things have been crushing it over the past five years, leaving the S&P 500 in the dust.

And here's where my brain wanted to do something dumb: "Well, if they've gone up that much, they're obviously going to keep going up, right?"

Wrong. So incredibly wrong.

Here's what actually happened with these "can't miss" investments:

European bank stocks skyrocketed because the European Central Bank finally raised interest rates after keeping them flat for like six years. Banks make more money when rates are higher—basic stuff. But guess what? Those rates are already starting to come back down. The thing that made these stocks explode? It's already reversing.

Energy stocks went crazy because oil prices surged after the pandemic. Companies like Chevron and Exxon were printing money. But oil prices are falling now because of oversupply. The party's winding down.

Japanese equities finally broke through after 35 years of stagnation. Thirty-five years! They implemented massive corporate reforms, share buybacks, the whole nine yards. The Nikkei 225 finally beat its peak from the late 1980s. But you know what? If you bought Japanese stocks at their peak in 1989 thinking they'd keep going up forever, you waited three and a half decades just to break even.

See the pattern? By the time we hear about these massive returns, the smart money already made their move.

Here's something wild that JP Morgan researched: they looked at when retail investors (that's us) actually put money into the market versus when we pull it out.

The results? We do literally everything backwards.

When markets are down and returns are low, we panic and pull our money out. When markets are up and everyone's making money, we pile in. We sell low and buy high—the exact opposite of what we're supposed to do.

Why? Two psychological traps that basically run our brains:

Loss aversion: When markets drop, our brains freak out about losing money. We feel the pain of losses way more intensely than the pleasure of gains. So we panic-sell or just stop investing entirely, even though that's actually when we should be buying.

Performance chasing: When markets are up, we assume they'll keep going up forever. We see those 300% returns and think, "I need to get in on this NOW," even though most of the gains have already happened.

Both of these are driven by something called recency bias—our brain's tendency to assume that whatever just happened will keep happening forever.

Let me give you a non-finance example that really hit me.

There's this British swimmer named Adam Peaty. From 2016 to 2021, he was absolutely dominant. He broke the world record in the 100m breaststroke 16 times. Sixteen consecutive world records. His fastest time was 56.88 seconds—a time people thought was basically impossible a generation earlier.

If you watched Peaty race, you'd think he was unbeatable. That he'd dominate forever. That betting against him would be stupid.

Then the 2024 Paris Olympics happened. An Italian swimmer named Nicolo Martinenghi beat him.

Peaty looked unbeatable until he wasn't. And that's exactly how markets work.

Japan looked unbeatable in 1989. Then it spent 35 years going nowhere. European bank stocks looked great in 2010, and many of them are still down 17% from that peak, 14 years later. Tech stocks looked unstoppable in 2000, then crashed 80%.

Dominance is never permanent. Past performance doesn't guarantee future results. We hear this all the time, but we don't actually believe it until we learn the hard way.

Here's something that should humble all of us: 80% to 94% of professional fund managers fail to beat the market over the long term.

Let that sink in. These are people whose entire job is picking stocks. Who have teams of analysts, Bloomberg terminals, insider access to management teams. And the vast majority of them can't consistently beat a simple index fund.

If they can't do it, what makes us think we can?

Warren Buffett has been saying this for decades: just buy a low-cost S&P 500 index fund and chill. But that's so boring, right? It doesn't feel like we're doing anything. It doesn't give us that dopamine hit of finding the next big thing.

And that's the problem—we're not trying to make smart investments. We're trying to feel smart. And those are very different things.

Okay, so here's where I landed after thinking about all this. There's this concept called behavioral portfolio theory that I think actually respects how our brains work instead of fighting against it.

It's basically a two-layer pyramid:

Layer 1 - The Security Layer (Bottom 80-90% of your portfolio):

This is your boring, can't-lose-sleep-over-it foundation. A simple global equity allocation. Or stocks and bonds based on your timeline. The key is that it's broad and diversified—not dependent on any single theme or sector crushing it.

This layer exists for one reason: to make sure you don't get financially wrecked and to keep you invested when things get boring or scary.

And here's the thing—this boring layer is actually enough. The FTSE Global Stock Market has averaged 9.1% annual returns over the past 20 years. If you invested just $250 a month with those returns, adjusting for 3% inflation, you'd have nearly $300,000 after two decades.

That's the power of staying boring and consistent.

Layer 2 - The Potential Layer (Top 10-20% of your portfolio):

This is where you get to scratch that itch. This is your "I have a strong conviction about AI" or "I think defense stocks are undervalued" money. Your thematic bets. Your moonshots.

The key is that this layer is small enough that if you're completely wrong, it doesn't ruin you financially. You can afford to take the L and move on.

This framework isn't just about diversification—it's about managing our own brains.

The security layer keeps us invested when things get scary. When markets drop 20% and everyone's panicking, you're not freaking out because you know your foundation is solid and diversified. You're not checking your portfolio every five minutes having a heart attack.

The potential layer satisfies our need to feel like we're doing something interesting. It lets us express our views about the future without gambling our entire financial security on those views being right.

Because here's what I'm learning: investing isn't about being right. It's about not being catastrophically wrong.

I used to think investing was about finding the next Amazon or the next Nvidia before everyone else. About being smarter than everyone and timing things perfectly.

But that's not the game. That's the game they want us to think we're playing because it keeps us trading, keeps us engaged, keeps us clicking.

The actual game is simpler and way less sexy: Build a boring core. Stay invested. Don't panic when things drop. Don't chase when things surge. Let time do the heavy lifting.

And if you really want to take some swings? Fine. But make them small enough that striking out doesn't end your game.

I'm rebuilding my approach from scratch. My core portfolio is going into broad, low-cost index funds that track global equities. Nothing exciting. Nothing that's going to make for cool conversations at parties.

Then I've got a small allocation—maybe 10-15% of my portfolio—for the things I'm genuinely interested in and have done research on. AI infrastructure. Certain disruptive companies. But small enough that if I'm wrong, I'm not devastated.

The goal isn't to get rich quick. It's to build wealth steadily while avoiding the psychological traps that make us do stupid things with our money.

Because at the end of the day, the biggest risk to our portfolios isn't the market. It's us. Our emotions. Our biases. Our need to feel like we're doing something.

The hardest part of investing isn't picking stocks. It's sitting still.

I'm still learning this. Still fighting the urge to chase the next hot thing. But at least now I understand what I'm fighting against.

Are you?

—Alex