The Science of Smarter Investing: What to Ask Yourself Before Acting

Investing is as much a psychological journey as it is a financial one. When markets become volatile, it’s natural to feel uncertain. The questions you ask yourself in these moments can make all the difference—not just to your portfolio, but to your peace of mind. Below, we’ll explore a set of essential self-reflection questions, and examine what academic research says about decision-making under uncertainty.

Ask Yourself These Questions

Take a moment to consider each of the following before making any investment moves:

1. If I sell now and the market rises further, how much would I regret missing out?

Regret aversion is a well-documented behavioural bias (Zeelenberg, 1999). Anticipating regret can help you make choices you'll stand by, even if the outcome isn't perfect.

2. Would I feel I panicked? Would I feel I’d broken my long-term plan?

Emotional reactions often lead to suboptimal decisions (Shefrin & Statman, 1985). Reflecting on whether your decision aligns with your plan helps avoid impulsive moves.

3. If I hold or buy more now, and the market falls further, how would I feel then?

Loss aversion (Kahneman & Tversky, 1979) shows that losses hurt more than equivalent gains feel good. Understanding your true risk tolerance is crucial.

4. Would I feel I took on more risk than I’m comfortable with? Would I feel I had no plan or risk controls?

A lack of a clear plan increases anxiety and the likelihood of making poor decisions (Barberis & Thaler, 2003).

5. If I do nothing, and the market goes nowhere for months—will I be frustrated, or content knowing I’ve stayed the course?

Sometimes, inaction is the best action. Research suggests that over-trading often leads to worse outcomes (Barber & Odean, 2000).

6. Am I reacting to short-term emotions, or have my long-term goals or time horizons actually changed?

Emotional investing is linked to lower returns (Loewenstein et al., 2001). Revisit your goals and time horizon before acting.

7. If I imagine looking back a year from now—what decision would I be most proud of having made today, regardless of market outcome?

This “future hindsight” technique is a powerful way to align actions with your values, not just your fears (Mitchell et al., 1997).

It’s Not About the Perfect Outcome—It’s About the Least Regrettable One

There’s no single “right” answer to these questions. The best decision is personal: it depends on your risk tolerance, financial goals, and emotional resilience. What matters most is making choices you can live with, regardless of how the market moves.

What the Research Says

Market Timing: A Costly Game

Numerous studies have shown that trying to time the market—buying and selling based on short-term predictions—rarely works in investors’ favor. For example:

• Dalbar’s Quantitative Analysis of Investor Behavior (2024) found that the average investor’s returns lagged the market largely due to poor timing decisions.

• Fama & French (2010) concluded that most active investors underperform the market over time.

The Power of a Plan

• Investors with a clear, written plan are less likely to react emotionally and more likely to achieve their goals (Statman, 2017).

• Regret minimisation is a useful framework: rather than seeking the “best” outcome, focus on the one you’ll least regret (Bell, 1982).

  
  

Emotional Resilience and Values

• Aligning decisions with personal values and comfort, rather than market headlines, leads to better long-term satisfaction (Thaler & Sunstein, 2008).

References

• Barber, B. M., & Odean, T. (2000). Trading is hazardous to your wealth: The common stock investment performance of individual investors. Journal of Finance, 55(2), 773-806.

• Barberis, N., & Thaler, R. (2003). A survey of behavioral finance. Handbook of the Economics of Finance, 1, 1053-1128.

• Bell, D. E. (1982). Regret in decision making under uncertainty. Operations Research, 30(5), 961-981.

• Dalbar Inc. (2024). Quantitative Analysis of Investor Behavior.

• Fama, E. F., & French, K. R. (2010). Luck versus skill in the cross-section of mutual fund returns. Journal of Finance, 65(5), 1915-1947.

• Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263-291.

• Loewenstein, G., Weber, E. U., Hsee, C. K., & Welch, N. (2001). Risk as feelings. Psychological Bulletin, 127(2), 267-286.

• Mitchell, T. R., Thompson, L., Peterson, E., & Cronk, R. (1997). Temporal adjustments in the evaluation of events: The "rosy view." Journal of Experimental Social Psychology, 33(4), 421-448.

• Shefrin, H., & Statman, M. (1985). The disposition to sell winners too early and ride losers too long: Theory and evidence. Journal of Finance, 40(3), 777-790.

• Statman, M. (2017). Finance for Normal People: How Investors and Markets Behave. Oxford University Press.

• Thaler, R. H., & Sunstein, C. R. (2008). Nudge: Improving Decisions About Health, Wealth, and Happiness. Yale University Press.

• Zeelenberg, M. (1999). Anticipated regret, expected feedback and behavioral decision making. Journal of Behavioral Decision Making, 12(2), 93-106.

Final Thoughts

Investing is about more than numbers; it’s about managing your emotions, expectations, and regrets. By asking yourself these questions—and grounding your decisions in research-backed principles—you can make choices that are right for you, no matter what the market does next.

RISK WARNING: All investing is risky. Returns at not guaranteed. Past performance and case studies are no guarantee of future results.

Disclaimer: The content provided on this blog is for informational purposes only and does not constitute financial advice. The opinions expressed here are the author's own and do not reflect the views of any associated companies. Investing in financial markets involves risk, including the potential loss of your invested capital. Past performance is not indicative of future results. 

You should not invest money that you cannot afford to lose. Mentions of specific securities, investment strategies, or financial products do not constitute an endorsement or recommendation. The author may hold positions in the securities discussed, but these should not be viewed as personalised investment advice. 

Readers are encouraged to conduct their own research and seek professional advice before acting on any information provided in this blog. The author is not responsible for any investment decisions made based on the content of this blog.

Alpesh Patel OBE

www.campaignforamillion.com