HRyu
← Notes

Finance & Markets

Behavioral Finance — The Psychology of Being Wrong

**Gap identified 2026-04-24:** The wiki has excellent philosophy (metacognition, Girard, Puer Aeternus) and strong market theses, but the bridge between the two is missing. This page maps cognitive biases specifically to investing decisions, and specifically to Hakyun's own psychological profile. See philosophy#Metacognition for the theoretical foundation and portfolio-construction for the structural response

Behavioral Finance — The Psychology of Being Wrong

Gap identified 2026-04-24: The wiki has excellent philosophy (metacognition, Girard, Puer Aeternus) and strong market theses, but the bridge between the two is missing. This page maps cognitive biases specifically to investing decisions, and specifically to Hakyun's own psychological profile. See [[philosophy#Metacognition]] for the theoretical foundation and [[portfolio-construction]] for the structural response.

Why This Page Exists

The [[philosophy]] pages are intellectually rich. The [[financial-markets]] and [[cybersecurity-thesis]] pages show genuine analytical depth. But knowing about cognitive biases (metacognition section) and knowing which biases are operating in your own investing decisions right now are different things.

The gap: Hakyun reads Dostoevsky on the danger of abstract thinking, understands Girard's mimetic desire, has written about metacognition. But none of this is specifically applied to the point where money is lost or made. That application is what this page does.

The Three Biases That Will Hurt Hakyun Most

These are selected not from a generic list, but from his specific profile as documented in [[hakyun-ryu]] and [[personal-growth]].

1. Confirmation Bias on Thesis Construction

What it is: Searching for evidence that confirms your existing belief; discounting evidence that contradicts it.

Why it's specifically dangerous for Hakyun: The cybersecurity thesis is comprehensively researched and strongly held. The five structural drivers are well-argued. The company-by-company analysis is granular. But the comprehensiveness of the research itself is the bias vector — a 10,000-word thesis creates psychological investment in being right. The more work done, the harder it is to revise.

How it shows up: Reading the Synapse market wraps and taking the AI Scare selloff as validation of mispricing (confirming the thesis). Not asking: "What if the market is right and I'm wrong? What information would I need to change my mind?"

The test: Can you write a 500-word bear case for cybersecurity that doesn't feel like a strawman? Can you read a strong bear case and update your position sizing? If you can't steelman the other side convincingly, you are in confirmation bias.

Specific application: For the ZS position (-36% YTD), the current frame is "narrative reversal opportunity." The confirmation bias risk is interpreting every piece of negative news as "temporary" and every piece of positive news as "thesis confirmation." The exit rules in [[portfolio-construction]] are the structural antidote.

2. The Puer Pattern in Markets (Waiting for the Perfect Entry)

What it is: Delaying action until conditions are "perfect" — which they never are.

The wiki has already named this pattern in [[personal-growth]] and [[philosophy#Puer Aeternus]]: "Tendency to delay action until 'ready enough.'" But the specifically financial manifestation isn't documented.

How it shows up in investing:

  • "I'll buy CRWD when it pulls back to $X" — the pull-back never comes, or comes briefly and you're paralyzed because now the price is moving fast
  • "I'll start investing after I graduate / get my first paycheck / fully understand CPF / read one more book"
  • Waiting for the "perfect" thesis before making a small learning position
  • "The market is too uncertain right now" — as if certain markets exist

The paradox: In markets, the puer's delay is indistinguishable from prudent patience. Both produce the same behavior (not acting). The difference is that patience is disciplined waiting for a specific signal (e.g., "I'll add to ZS when it holds above $X for 2 weeks post-earnings"). The puer is open-ended waiting for comfort — which is never delivered.

The fix: Replace "when I'm ready" with a specific observable criterion. Not "when I understand it better" but "when I've completed reading X, built Y model, checked Z fundamental metric." If you can't state what ready looks like, it's the puer pattern, not prudent patience.

Connection to Dostoevsky: Raskolnikov's delay before the murder was not caution — it was the paralysis of over-thinking while the emotional reality was avoided. Hakyun's reading of Dostoevsky adds irony here.

3. The Sunk Cost Fallacy — Mistaking Sunk Work for Investment Quality

What it is: Continuing to hold or add to a position because of the work already done to research it, not because of its current merits.

Why it's specifically dangerous with research-intensive investing: When you've spent 20 hours building a thesis, written 5,000 words on it, followed the sector for months, you've created a psychological sunk cost. Updating the thesis now feels like admitting the 20 hours was wasted.

It isn't wasted. The thesis was right as a framework — it may simply be wrong at this price, at this time, in this position size.

How it shows up:

  • "I've researched this company thoroughly — that means I should hold through the downturn"
  • Not updating position sizing when the thesis is partially invalidated (e.g., one of the five cybersecurity drivers weakens)
  • Defending the thesis to others and taking their skepticism as motivation to dig in more rather than update

The fix: Separate the thesis from the position. The thesis lives in [[cybersecurity-thesis]]. The position lives in the portfolio. These can diverge. The thesis can be correct and the position can still be the wrong size for the current moment.

The Full Bias Map for Investors

System 1 vs System 2 (Kahneman)

System Properties Market expression
System 1 Fast, automatic, emotional, pattern-matching Panic selling; FOMO buying; anchoring to round price levels
System 2 Slow, deliberate, logical, effortful Thesis construction; valuation models; scenario analysis

The key insight: You do thesis construction in System 2 (cool, analytical, unhurried). You make the buy/sell decision under market conditions in System 1 (price moving, news arriving, social media active). The System 1 decision almost always deviates from the System 2 thesis.

Fix: Write the decision criteria in advance (System 2). Commit to following them. Don't make material portfolio decisions when the market is open and moving.

Anchoring

Definition: Over-weighting an initial number when making subsequent estimates.

How it appears in investing:

  • "I bought CRWD at $350 — it's at $280 now, I'll add when it gets back to $320" ($320 is an anchor — it has no fundamental significance)
  • Setting price targets based on previous highs rather than DCF/thesis-derived values
  • "Silver was at $121, it's at $79 — it must be cheap" (the $121 is an anchor, not a fair value signal)

The silver case from [[market-intelligence]]: Silver fell from $121 to $79 on the Warsh nomination and margin calls. An anchoring error would be assuming $79 is "cheap" because it's far from $121. The fundamental question is: why was it at $121? If the bull case was debasement and the Warsh nomination directly attacks that case, $79 may not be cheap at all.

Fix: Don't use "distance from recent high" as a valuation signal. Derive price targets from fundamentals (DCF, relative valuation, earnings growth), not from previous prices.

Recency Bias

Definition: Over-weighting recent events; assuming current trends continue.

Two manifestations:

  1. After a rally: The recent trend "proves" the thesis; position sizing increases; risk increases just as conditions may be peaking
  2. After a crash: The recent trend "disproves" the thesis; capitulation selling at exactly the wrong moment

The Q1 2026 illustration: March 2026's S&P 500 -4.98% generated "worst month since 2022" headlines. Recency bias interprets this as evidence of a sustained bear market. But the Synapse wrap notes that ISM Manufacturing (52.7) and ISM Services (56.1) both showed expansion — the underlying economy was not in recession. The market was processing a specific shock (Hormuz + Warsh), not pricing a permanent decline.

Fix: Ask "what was true 12 months before the trend I'm observing?" Reversion to mean is more common than trend continuation in financial markets.

Loss Aversion (Prospect Theory — Kahneman/Tversky)

Finding: Losses feel psychologically twice as painful as equivalent gains feel pleasurable. A $1,000 loss hurts approximately as much as a $2,000 gain feels good.

How it distorts investing:

  • Selling winners too early (to lock in the good feeling)
  • Holding losers too long (to avoid the pain of realizing the loss)
  • This is called the disposition effect — the empirically documented tendency of investors to sell winners and hold losers

The paradox: Tax-wise (in the U.S.) and sanity-wise, you should hold winners (let compounding work) and cut losers (stop the bleeding). Loss aversion makes you do the opposite.

In Singapore: No capital gains tax removes the tax argument for cutting losers. But the psychological disposition effect still operates. The "I'll sell when it gets back to even" is the disposition effect in action.

Fix: Evaluate each position as if you're buying it fresh today. Ask: "If I had cash instead of this position, would I buy it at today's price?" If no → sell. The price you paid is irrelevant.

Overconfidence After Comprehensive Research

Definition: Calibration failure — believing you know more than you do because you've done a lot of work.

Why research creates overconfidence: More information feels like more certainty. But information and knowledge are not the same as accurate prediction. The cybersecurity thesis is comprehensive — but CFA-level research into the same thesis is also comprehensive. The insight is only valuable if it's different from what the market has priced.

The expert investor paradox: Professional analysts with deep sector knowledge frequently underperform passive indices. The knowledge advantage exists; it's insufficient to overcome market efficiency, execution errors, and fee drag.

Fix: Ask before every position — "What do I know that the market doesn't?" If the answer is "I've read more about it," that's not an edge. If the answer is "I understand the Singapore data center REIT angle of the cybersecurity thesis, and most U.S. investors don't think about Singapore REITs," that might be a genuine edge.

Herding / Social Proof

Definition: Doing what others are doing as a proxy for correct behavior.

How it appears: Reading the Synapse market wraps and using them as conviction amplification (they're confirming what you already think). Seeing Bitcoin's March 2026 resilience and wanting exposure because others are rotating into it. LinkedIn finance content creating a false consensus.

The Girard connection: This is exactly Girard's mimetic desire applied to markets. The crowd's enthusiasm for an asset makes the asset desirable — which is the mechanism of bubbles. When everyone wants the same thing (November 2021 crypto, February 2020 SPACs), you're at the peak of the mimetic cascade.

Fix: Specifically seek out the contrarian case. Follow people who are structurally opposed to your thesis. Read the short thesis for your long positions. If you can't find the short thesis, you haven't done enough research.

The Decision Journal — Implementation

The single most effective behavioral correction tool. For every meaningful investment decision (not mechanical rebalancing):

DATE:
POSITION: [ticker/asset]
ACTION: [buy/sell/hold/size change]
PRICE AT DECISION:
THESIS (2 sentences max):
WHAT WOULD BREAK THIS THESIS:
WHAT WOULD CONFIRM THIS THESIS:
PROBABILITY OF SUCCESS (honest estimate):
POSITION SIZE AND WHY (Kelly fraction used):
SYSTEM 2 OR SYSTEM 1 DECISION? (was I calm or reacting?)
REVIEW DATE:

At the review date, return to the journal. Were the thesis confirmation/break criteria met? Was your probability estimate calibrated?

Over 12–18 months, this creates an empirical record of your own biases. You will see patterns: you overestimate probability on high-conviction theses, you hold losers too long, you sell winners when they gap up. The journal makes the pattern visible and correctable.

The Pre-Mortem Practice

Before entering any position over 5% of portfolio:

  1. Set a timer for 10 minutes
  2. Write: "It is 18 months from now. This position has lost 60%. What happened?"
  3. Write every plausible scenario without defending against them
  4. Ask: "Does this scenario change my position size or entry conditions?"

This forces System 2 engagement with the loss scenario before System 1 is triggered by actual loss.

Applied to ZS (April 2026):

  • "It is October 2027. ZS is at -50% from my entry. What happened?"
  • Microsoft used Azure security bundling to win 30% of ZS's renewal cycle
  • A major Zero Trust breach occurred and ZS was involved
  • The macro environment shifted to deflationary recession → enterprise IT budgets slashed
  • Warsh aggressively raised rates → multiple compression continued → 10x revenue became 6x
  • "Which of these is plausible?" → All of them. "Does that change my sizing?" → Yes, Quarter Kelly, not Half Kelly.

Hakyun-Specific Behavioral Profile

Based on [[hakyun-ryu]] and [[personal-growth]]:

Known Pattern Investment Expression Correction
"Delay until ready" (Puer) Waiting for perfect entry; not building small learning positions State specific criteria for "ready"; act on the criteria, not the feeling
Deep-research investing Sunk cost fallacy on theses; overconfidence post-research Separate thesis quality from position quality; price targets from fundamentals
Systems thinker Building comprehensive frameworks before acting Build AND act in parallel; the 70% system note from Monetising Second Brain applies here too
Strong communicator Rationalizing bad decisions well (to self and others) Use the pre-mortem; ask "what would a critic say?"
Connects across domains May see connections that aren't there (apophenia) Require mechanistic links, not just pattern similarity
"Moving toward action despite imperfection" This is the correct direction Reinforce with small wins; track decision journal outcomes

Connection to Philosophy Pages

[[philosophy#Metacognition]] (Stephen Fleming): The "illusion of explanatory depth" — we believe we understand things far better than we do. Directly applies to investment thesis confidence. Ask: "Can I explain in full mechanical detail exactly how the cybersecurity thesis plays out in EPS and multiple expansion?" If not, you have explanatory depth illusion.

[[philosophy#Dostoevsky]]: "Abstract and therefore cruel." The danger of reducing companies to thesis elements (ARR growth, NRR, TAM) without understanding the human organizations, management failures, competitive psychology. Raskolnikov's utilitarian arithmetic is how bad investors think: "the math says buy." The math alone is never sufficient.

[[philosophy#René Girard]]: The cybersecurity selloff is partly a mimetic crisis — analysts converging on the same bear narrative creates a cascade that overshoots fundamentals in both directions. The relief rally (when it comes) will also overshoot. Mimetic cascades are features of markets, not bugs.

[[soul]]: "I will not run away from conflict." Applied to investing: don't sell just because the position is down and the narrative is against you. Hold what you can justify on fundamentals, cut what you can't. The difference matters.

Related Pages

[[philosophy]] | [[portfolio-construction]] | [[financial-markets]] | [[cybersecurity-thesis]] | [[personal-growth]] | [[soul]]