AI Wealth Truth (21): Why You Always Buy at Market Tops and Sell at Market Bottoms

I. The golden rule of markets is "buy low, sell high". Everyone knows it. But data shows: most retail investors do the exact opposite: buy high, sell low. They rush in when the market is euphoric, and flee when it crashes. Perfectly inverted execution.

II. This is not an intelligence problem. Plenty of highly educated, high-IQ people make the same mistakes. It is a nervous system problem.

III. Humans are social animals. The brain has a mirror neuron system. When you see someone do something, the brain regions responsible for doing it also activate in you. That is the foundation of empathy and social learning. But it also means: other people's emotions directly shape your emotions.

IV. Panic is contagious. When you see others dumping in panic, your amygdala fires. You feel the same fear. Logical analysis is too slow to stop the emotional response. Your sell button gets pressed before your brain finishes thinking.

V. Greed is contagious too. When you see everyone making money, talking about a stock, showing off returns, you feel fear of missing out (FOMO). You do not want to be the person who "missed it". Your buy button gets pressed before you realize the price is already high.

VI. This is herding behavior. Individuals imitate the crowd, even when the crowd is wrong. Evolutionarily, it made sense. In danger, running with the group was often the safest choice. But in investing, following the crowd often means: doing the wrong thing at the wrong time.

VII. Look at the numbers. Dalbar publishes annual reports comparing ordinary investors' returns with market index returns. Over the past 30 years, the S&P 500 returned about 10% per year. Ordinary investors' realized returns? About 4%. Where does the gap come from? Timing mistakes.

VIII. They rushed in at the peak of the 2000 tech bubble. They capitulated at the bottom in 2002. They rushed in at the peak of the 2007 housing bubble. They capitulated at the bottom in 2009. They rushed in at the peak of asset prices in 2021. Every cycle is buy high, sell low.

IX. Why is herding so strong?

X. Reason 1: information cascades. You cannot independently analyze all information. So you watch others' actions and treat them as information. "So many people are buying. They must know something I do not." In reality, they are watching others too, and they also know nothing.

XI. Reason 2: the need for social validation. If the market is crashing and you keep holding, you stand apart. If you are wrong, you bear the consequences alone. If you sell with everyone else, at least you are wrong together. Being wrong together feels easier than being wrong alone.

XII. Reason 3: media amplification. Media survives on attention. Panic and mania are perfect material. If the market drops 10%, headlines scream "CRASH! PANIC SPREADS!" That further amplifies fear. What you see is not reality. It is amplified emotion.

XIII. Reason 4: social media echo chambers. In bull markets, your feed fills with posts bragging about gains. In bear markets, your feed fills with posts of despair. Algorithms push you more of the same. Your information sources systematically amplify market emotion.

XIV. In the AI era, this gets worse. AI-driven quantitative trading amplifies volatility. When a drop triggers stop-loss algorithms, mechanical selling creates more decline. More decline triggers more stop-loss. AI makes crashes faster and more violent.

XV. Social media also uses AI to maximize engagement. Panic content and mania content gets more clicks. Algorithms prioritize those. Your information diet is optimized to maximize emotional stimulation.

XVI. Trading apps exploit it too. Real-time alerts. Price movement notifications. "Hot stocks" rankings. These designs push you to decide at emotional peaks. Apps want you to trade more, because they earn on every trade.

XVII. How do you fight herding?

XVIII. Strategy 1: reduce information intake. You do not need to read news every day. You do not need to watch prices in real time. The more information you consume, the more your emotions swing. Consume less, and your decisions become more rational.

XIX. Strategy 2: make a plan in advance. Build an investment plan when your emotions are calm. "If the market drops 30%, I will add." "If the market rises 100%, I will trim." Write it down. When emotions surge, execute the plan, do not invent new decisions. Use prior rationality to override instant emotion.

XX. Strategy 3: think in reverse. When everyone is panicking, ask: "What positive factors are they ignoring?" When everyone is euphoric, ask: "What risks are they ignoring?" Buffett's line: be fearful when others are greedy, and greedy when others are fearful.

XXI. Strategy 4: physical separation. Delete trading apps. Turn off real-time notifications. Set a fixed schedule to check your portfolio, maybe once a month. Make impulse trading physically inconvenient.

XXII. Strategy 5: adopt a long-term lens. In the short run, the market is a voting machine. In the long run, it is a weighing machine. Short-term prices reflect emotion. Long-term prices reflect value. If you hold for 20 years, intermediate volatility matters little to the final outcome. Zoom out, and volatility shrinks in importance.

XXIII. You are not deciding in a vacuum. You are deciding inside a crowd full of the same fear and greed. Their emotions will infect you. Seeing this is the first step to resisting it.

XXIV. The majority in markets is almost always wrong. Because the majority does the wrong thing at the wrong time. If you act like the majority, you get the majority's outcome. That outcome is underperforming the index. In the AI era, the herd runs faster and turns more violently. If you keep running with it, whether you end up exhausted or trampled is only a matter of time.