Ever noticed how much it stings to lose $100 on a stock but winning $100 doesn’t feel nearly as good?
That painful truth is just one of the psychological traps revealed in T. Rowe Price’s eye-opening new podcast episode about behavioral finance.
The investment management firm’s latest episode of “The Angle” features a frank conversation with behavioral finance expert Herman Brodie that exposes why smart investors keep making dumb mistakes – and how you might be sabotaging your own portfolio without realizing it.
“We don’t perceive losses to the same extent that we perceive gains,” Brodie explains in the podcast. “In fact, it’s estimated that we perceive a loss with more than double the intensity than we perceive a gain, for the same monetary amount.”
The costly mistake nearly all investors make
In the episode titled “Decoding Behavioral Finance,” Justin Thomson, head of T. Rowe Price Investment Institute, sits down with Brodie to explore why human psychology wreaks havoc on investment returns.
Brodie, founder of consulting firm Prospecta Limited and author of “The Trust Mandate,” reveals something called the “disposition effect” as perhaps the most destructive investment mistake.
“This is the tendency, when people are winning, to want to take those profits very quickly, but when they are losing, to want to adopt a much more generous attitude to risk and allow those losses to run,” Brodie explains during the conversation.
This habit of grabbing quick profits while letting losses grow is so powerful that Brodie calls it “probably responsible for some of the greatest disasters of all financial history.”
Even more troubling? Simply knowing about this tendency doesn’t prevent investors from falling victim to it.
When algorithms can’t save us from ourselves
Perhaps most revealing is Brodie’s personal story about how human psychology can undermine even the most sophisticated investment approaches.
As an algorithmic trader at an investment bank, Brodie watched his bosses make two devastating timing decisions despite using computer models designed to remove human bias:
“After some very, very good performance . . . the boss had the idea that we should double up the volumes going through these models because they’re doing so well,” Brodie recalls. “That corresponded within a week or so of the peak of the performance and subsequently we experienced some drawdowns.”
Later, after a brief period of poor returns, management ordered the algorithms shut down entirely – on what proved to be “to the day, the worst point of the performance.” Afterward, returns “skyrocketed.”
This story highlights how even professional investors with sophisticated tools can’t escape their psychological wiring.
Why financial education misses the mark
For decades, investors have been taught that mastering technical analysis and financial statements is the key to success. But the podcast reveals a more fundamental challenge: our brains aren’t wired for rational investment decisions.
Brodie emphasizes that we can’t simply “learn not to be human.” Instead, he recommends creating guardrails in our investment process to prevent psychological biases from hurting performance.
“You can’t learn not to be human,” Brodie cautions. “If you had to just learn about behavioral finance to be a better investor, then I would be the world’s best investor because I’ve been doing nothing more other than this for the last 25 years.”
His advice? Identify which behavioral traits hurt you most, then build systematic protections into your investment process – like requiring permission from someone else before selling a losing position.
Why we trust the wrong investment advisors
The podcast also explores surprising findings from Brodie’s book about how investors choose financial advisors. While the industry focuses heavily on demonstrating competence and investment track records, research shows clients actually prioritize something else first: benevolence.
“Does this person genuinely have my best interests at heart, or are they going to use that competence to pursue their own selfish interests?” Brodie explains. “Unless we believe that they have benevolent intentions towards us, that they have our best interests at heart, the competence does not really matter.”
Rowe Price’s growing podcast presence
This behavioral finance episode is part of T. Rowe Price’s broader strategy to deliver investment insights through engaging digital content. The firm launched “The Angle” podcast in February 2024, covering topics including artificial intelligence, the blue economy, and the 2024 U.S. Election.
“The Angle” joins the company’s other podcast series, “CONFIDENT CONVERSATIONS® on Retirement,” which is now in its fourth season. As of April 30, 2025, T. Rowe Price manages $1.56 trillion in assets, with approximately two-thirds related to retirement investments.
The episode can be found on Spotify, Apple Podcasts, and other major podcast platforms.
For investors navigating today’s volatile markets, understanding these psychological forces could be the difference between reaching retirement goals and falling short. As Brodie suggests in the podcast, the key isn’t eliminating these biases – that’s impossible – but building safeguards against our worst investing impulses.
