Most investors know the principle: buy low, sell high.
Yet across markets and generations, the opposite pattern repeats. Investors buy when prices are rising because they are excited about potential gains, then sell when prices fall because they fear losing more.
This is not a failure of intelligence. It is a feature of human psychology, and it affects experienced investors as much as beginners. Understanding why it happens is the first step toward making more deliberate investment decisions.
When Emotions Enter the Portfolio
Behavioural finance examines how psychology influences financial decisions. Investors do not always act on facts, analysis and financial objectives alone. Emotions, past experiences and the behaviour of others can shape what we buy, hold or sell.
For equity investors on the Nigerian Stock Exchange, recognising these patterns is particularly relevant. The NGX has experienced periods of significant momentum followed by subsequent corrections after some time, and each cycle produces the same behavioural traps.
1. Loss Aversion: The Fear of Losing
Imagine buying a stock at ₦100. It falls to ₦80.
Your first instinct may be to sell before the loss deepens. But if the company’s fundamentals have not changed, the decision to sell may be driven more by discomfort than by investment analysis.
Loss aversion describes our tendency to feel losses approximately twice as strongly as equivalent gains. Research in behavioural economics consistently shows that the pain of losing ₦100,000 is psychologically more intense than the pleasure of gaining ₦100,000.
This can manifest in two ways:
• Holding losing investments for too long, hoping they recover (because selling would mean admitting the loss)
• Selling winning investments too early, locking in a gain before it can be “taken away”
Both behaviours can undermine long-term portfolio performance.
The question to ask: Has something fundamentally changed about this investment, or am I reacting to the price movement?
2. Herd Mentality: Everyone Is Buying
A stock is suddenly everywhere: on social media, in conversations, across market commentary and WhatsApp groups.
The temptation is to join the crowd.
But popularity is not the same as value. Following market sentiment without understanding the underlying investment can lead investors to buy after prices have already risen significantly. During boom periods, herd-driven investors often enter when prices are already elevated, only to face losses when the momentum fades. When sentiment shifts, the rush to exit can leave these investors selling at a loss.
The Nigerian market can be particularly susceptible to herd behaviour during periods of heightened market activity, when specific sectors, stocks or investment opportunities attract concentrated retail interest.
The question to ask: Would I still buy this investment if nobody else was talking about it?
3. Recency Bias: Assuming Today Predicts Tomorrow
A stock has performed strongly over the past few months. It is easy to assume the trend will continue.
Or perhaps the market has declined for several weeks, and you conclude there is no reason to invest now.
This is recency bias: giving disproportionate weight to recent events when making decisions about the future.
Past performance and recent market movements provide useful context, but they are not reliable predictors of future results. A more considered approach looks beyond the latest price movement to the investment’s fundamentals, valuation and longer-term outlook.
The question to ask: Am I looking at the bigger picture, or just the most recent one?
The Cycle of Emotional Investing
The challenge with behavioural biases is that they reinforce one another:
Excitement → Fear of Missing Out → Buying → Uncertainty → Fear → Selling
This cycle can leave an investor buying after a strong run and selling after a decline, the opposite of what a disciplined, long-term investment approach is designed to achieve.
Understanding this cycle does not make you immune to it. But awareness creates a pause between impulse and action, and that pause is where better decisions are made.
How to Invest Beyond Your Biases
You cannot completely remove emotion from investing. But you can create a process that makes emotional decisions less likely.
Before buying or selling an equity, consider:
1 Why am I making this decision right now?
2 Has the investment’s underlying outlook or valuation changed?
3 Am I reacting to the market or following my investment strategy?
4 Am I relying too heavily on recent performance?
5 Does this decision align with my financial goals and risk tolerance?
6 Have I consulted research or analysis, or am I acting on sentiment alone?
A clear investment plan, a diversified portfolio, and access to independent research can help investors avoid making decisions based on short-term market movements.
Invest With Awareness, Not Emotion
Good investing is not about predicting every market movement. It is about making decisions with a clear understanding of your objectives and the risks involved.
The more aware you are of your own behavioural tendencies, the better positioned you are to question your instincts before they become investment decisions.
At Coronation Securities, we provide investors with access to the Nigerian equities market supported by research, advisory and professional execution. Our Research team publishes regular market commentary, stock recommendations, and sector analysis to help inform investment decisions independent of market sentiment. To access research platform click here
Before your next buy or sell decision, ask yourself: is the market driving my decision, or is it my investment strategy?
Speak with Coronation Securities about building a more disciplined approach to equity investing, supported by research and professional advisory.
For more information, contact us at sales@coronationsl.com.
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