so giving this a second read after seeingyour note, how do you differentiate panic selling versus thesis broken sell? does time of consideration of selling make it not a panic sell?
because i would argue the more experienced investors know not to sell which thus makes them experience because they have through “hard times” in the market which typically just come and go
i would argue those who did not sell during the trumpcession of 2025 did not panic sell and thus were actually the experienced investors
The study’s definition of “panic selling” is already extremely stringent: it requires losing at least 90% of your portfolio, with at least 50% of that reduction coming from actual sales. In cases that extreme, “broken thesis” scenarios should, in my view, be very rare. For that to be the main explanation, you would need either (1) many theses to break simultaneously, or (2) investors to be heavily concentrated in one or two theses that break at the same time, both of which also seem uncommon to me.
We can’t reliably distinguish panic selling from thesis-driven selling on a case-by-case basis in every instance, but at the sample level the evidence is fairly clear: investors who would not have panic-sold outside crash periods would have performed better if they hadn’t panic-sold during crashes either. That implies that genuinely “broken thesis” exits are probably a minority of the events captured here.
Moreover, given how specific and extreme the definition is, it’s reasonable to assume that an objectively experienced investor is less likely than others to exhibit this kind of behavior in the first place.
Finally, the paper is only about investors’ perceived competence, not their actual competence. That distinction is, to me, central to interpreting the results. For instance, it’s plausible that among people who consider themselves competent investors, the proportion who are objectively competent is quite small relative to the rest.
I think the most important takeaway from this study is that, independently of psychological factors (in particular personality traits, which the study doesn’t account for), there are also recurring sociological and life-cycle factors that can systematically influence selling behavior, for example being a business owner/executive, taking on more dependents over time, or approaching retirement.
What I appreciate here is the refusal to psychologise — is this even a word — panic as stupidity.
This reads less like behavioural finance and more like behavioural sociology with a spreadsheet.
The identity angle is the just the quiet knife:
Confidence and responsibility increasing panic risk isn’t counterintuitive once you realise panic selling is often about preserving self-consistency, not avoiding loss.
Also refreshing to see the data dismantle the lazy Dunning–Kruger reflex.
Monitoring frequency, exposure size, and identity pressure explain far more than “people are bad at judging themselves”.
And the most important distinction I see here lands cleanly:
Selling isn’t the sin, staying out is.
The opportunity cost framing turns panic from a moral failure into a timing problem, which feels much closer to how real humans actually behave.
This is structured thinking doing exactly what it should:
Removing judgement and replacing it with mechanics.
Even if the sample size puts the analysis closer to sociology than to psychology (behavioral finance), the core topic is still fundamentally psychological, specifically panic, which is an emotional response.
I didn’t state it explicitly, but I wasn’t equating emotion with bad decision-making, nor was I setting up an emotion-versus-rationality dichotomy. And actually, your message gave me an idea for a future topic. I can’t wait to start it, it’ll take me right back to my PhD years.
Thank you for that, and for the feedback as well. I’m glad you enjoyed it.
so giving this a second read after seeingyour note, how do you differentiate panic selling versus thesis broken sell? does time of consideration of selling make it not a panic sell?
because i would argue the more experienced investors know not to sell which thus makes them experience because they have through “hard times” in the market which typically just come and go
i would argue those who did not sell during the trumpcession of 2025 did not panic sell and thus were actually the experienced investors
The study’s definition of “panic selling” is already extremely stringent: it requires losing at least 90% of your portfolio, with at least 50% of that reduction coming from actual sales. In cases that extreme, “broken thesis” scenarios should, in my view, be very rare. For that to be the main explanation, you would need either (1) many theses to break simultaneously, or (2) investors to be heavily concentrated in one or two theses that break at the same time, both of which also seem uncommon to me.
We can’t reliably distinguish panic selling from thesis-driven selling on a case-by-case basis in every instance, but at the sample level the evidence is fairly clear: investors who would not have panic-sold outside crash periods would have performed better if they hadn’t panic-sold during crashes either. That implies that genuinely “broken thesis” exits are probably a minority of the events captured here.
Moreover, given how specific and extreme the definition is, it’s reasonable to assume that an objectively experienced investor is less likely than others to exhibit this kind of behavior in the first place.
Finally, the paper is only about investors’ perceived competence, not their actual competence. That distinction is, to me, central to interpreting the results. For instance, it’s plausible that among people who consider themselves competent investors, the proportion who are objectively competent is quite small relative to the rest.
I think the most important takeaway from this study is that, independently of psychological factors (in particular personality traits, which the study doesn’t account for), there are also recurring sociological and life-cycle factors that can systematically influence selling behavior, for example being a business owner/executive, taking on more dependents over time, or approaching retirement.
great read
Thanks for the feedback!
This is a truly fun to read, thank you!
Thanks for your feedback! Glad you appreciated it.
What I appreciate here is the refusal to psychologise — is this even a word — panic as stupidity.
This reads less like behavioural finance and more like behavioural sociology with a spreadsheet.
The identity angle is the just the quiet knife:
Confidence and responsibility increasing panic risk isn’t counterintuitive once you realise panic selling is often about preserving self-consistency, not avoiding loss.
Also refreshing to see the data dismantle the lazy Dunning–Kruger reflex.
Monitoring frequency, exposure size, and identity pressure explain far more than “people are bad at judging themselves”.
And the most important distinction I see here lands cleanly:
Selling isn’t the sin, staying out is.
The opportunity cost framing turns panic from a moral failure into a timing problem, which feels much closer to how real humans actually behave.
This is structured thinking doing exactly what it should:
Removing judgement and replacing it with mechanics.
A great piece. Thanks!
Even if the sample size puts the analysis closer to sociology than to psychology (behavioral finance), the core topic is still fundamentally psychological, specifically panic, which is an emotional response.
I didn’t state it explicitly, but I wasn’t equating emotion with bad decision-making, nor was I setting up an emotion-versus-rationality dichotomy. And actually, your message gave me an idea for a future topic. I can’t wait to start it, it’ll take me right back to my PhD years.
Thank you for that, and for the feedback as well. I’m glad you enjoyed it.
Looking forward to the next piece!