Loss Aversion: The Emotional Impact Is Real

11th November 2019, around 2.10 AM Malaysia Time zone. It’s the 77th minute of the game. Liverpool FC (LFC) was leading by 3 goals but Manchester City (City) managed to sneak a goal in. For City to equalize they need to score extra two goals in the next 13 minutes plus stoppage time.

Based on probability, this is an unlikely event but here I was as a LFC fan dreading the worse outcome. The thought of conceding two extra goals and consequently losing two points or worse, losing the game itself from a winning position was pure agony.


Anything is possible in football. I mentioned it was unlikely for City to equalize in the last few minutes, but I was fully aware they have scored two goals in quick succession against LFC in previous fixtures.

On 13th April 2014, City scored two goals in 5 minutes while on 14th January 2018 it took them 6 minutes. This information alone was enough for my anxiety to kick in.

I couldn’t bear to watch the last 13 minutes. I mute my TV as I didn’t want to hear the game commentary. I also remember walking out to my balcony and started taking deep breaths to calm down. How I wish the game could just end at the 77th minute.

Loss Aversion

“Losses loom larger than corresponding gains”

– Kahneman & Tversky

After all these years, I would have thought I’ll be able to handle these situations better. Unfortunately, the feeling of victory slipping away was just as unbearable as before. Thankfully, in the end, LFC managed to hold on to their lead.

Football fans regardless of which team they support will be able to relate to the above experience. The emotional impact of losing, especially from a winning position is always worse than winning itself.

Whether we realize it or not, most of us are loss averse. We hate to lose because the pain of losing is thought to be twice as great as the pleasure of gaining.

This is just one of many useful infographics designed by Carl Richards aka The Sketch Guy made available on his site Behavior Gap. His tweets on behavioral investing was definitely an eye opener for me.

Football & Money = Emotion

In my previous post, Football Club Supporters: Emotional Long Term Investors, I shared how emotions may negatively affect long term investment. To relate, here’s a chapter I’m retrieving from my recent investment experience into one of a local-based Small and Mid-Cap fund early this year.

On 8th Jan 2019, I noticed both the FTSE Bursa Malaysia Small Cap and Mid 70 Index past year return were down by around -33% and -14% respectively. With this information alone I realized I’ll be able to invest in the fund at a discounted price. Mind you, I have no clue if they will go up or down in the future.

Since I figured I’m investing for the long term (for my retirement to be precise), I saw this as an opportunity. I’m glad I did invest as my current return is up by around 11.5%. By right I should be happy about this, but now I’m thinking about loss aversion. What if the market goes down from here onwards? Should I cash in and lock in my profit? If you noticed I mentioned I’m investing for my retirement, yet here I am contemplating future short-term losses.

So, what would you do if you are in my shoes?


In case you are wondering if I know something about the market, trust me I don’t. From all my investments I did this year, this is the only one that has resulted in a significant positive return. For comparison purposes, around July this year, I invested in another local based Small and Mid-Cap fund but sad to say it is currently running at a 4% loss.

Also, do a Google search on loss aversion. There are so many good write-ups on it over the net. It’s purely based on our behavior and less about investing skill. Sharing one here.