537: Markets Do Not Behave Like Saber-Toothed Tigers

You know, the longer I’ve been an investor, the more I realize this simple truth: the biggest threat to your wealth isn’t the market… it’s your own brain.

We’re all wired the same way—with instincts that were fantastic for avoiding saber-toothed tigers but are absolutely terrible for making good financial decisions.

Take something simple like a marathon. If I asked you to predict next year’s top finishers, you’d look at last year’s results. That works. Human performance doesn’t flip upside down in twelve months. The best runners tend to stay the best runners. There aren’t that many variables to consider.

When we try to apply that same logic to investing, it often blows up in our faces.

There are way too many variables to consider when it comes to market behavior to make simple assumptions.

Entire sectors rotate from darling to disaster in a heartbeat. Yet our brains keep telling us, “Hey, this worked last year, surely it’ll work again.” 

In my view, nowhere is that psychological mismatch more obvious than in real estate right now.

A few years ago, when real estate was on fire—cheap debt, rising rents, deals getting snapped up before lunch—everybody wanted in. 

Fast-forward to today. We’ve had a rate shock. Values have reset. Properties are selling at steep discounts. And Construction starts have fallen off a cliff. Real estate got slaughtered.

But look around now. The market has reset. Assets are selling 30 percent below where they did just after Covid. Jobs and population growth in places like the Carolinas, Texas, and Arizona look fantastic, and interest rates are falling quickly.

Every macro indicator you can name is pointing to a major buying opportunity—one of the best in the last 15 years. So naturally… few people are paying attention. Markets that are bottomed out are not sexy. If it’s not frothy, it’s not newsworthy.

This is human nature in a nutshell.

When assets are expensive and risk is quietly rising, people feel brave. When assets are attractively priced, and future returns look great, people get scared.

It’s recency bias: assuming whatever just happened will keep happening.

It’s loss aversion: we fear losing a buck more than we enjoy making one.

It’s herd behavior: we’d rather be wrong with the crowd than right by ourselves.

And of course, it’s confirmation bias—where people seek out whatever headlines validate the emotions they’re already feeling.

It’s not logical. It’s not strategic. But it is human.

And that’s why this week’s guest on Wealth Formula Podcast is of value to listen to.

He’s one of the leading experts in the world on investor psychology—someone who can explain, with real data, why even intelligent investors consistently jump into markets late, bail out early, misread risk, and miss the best opportunities… especially the ones sitting right in front of them.

If you’ve ever wondered why you sometimes make brilliant decisions and other times do the financial equivalent of touching a hot stove twice, this conversation is going to hit home.

Learn more about Prof. Terrance Odean:

https://haas.berkeley.edu/faculty/terrance-odean/