# Losses hurt twice: checking, herding, chasing and bubbles

> How loss aversion, checking too often and following the crowd lead to selling low and buying high.

- Course: [Long-Term Investing: Index Funds, Risk and Your Own Behavior](https://productovi.com/courses/long-term-investing.md)
- Module: The users are the risk (and so are we)
- Lesson 26/32, ~25 min
- Source: https://productovi.com/courses/long-term-investing/losses-hurt-twice

## More checks, more selling

**Alex Tutor:** Still September at Zapas, a few days after the behavior-gap numbers. As the PM you own the notifications, and Ethan arrives with two ideas for launch.

**Ethan:** One: an evening push, "Your portfolio today: +0.4%". Engagement loves daily numbers. Two: a "Trending" banner on Robo Theme. People want what's hot.

**Grace:** Before we build either, look at the beta. We asked every user how often they open the app: daily, weekly or monthly. Then we counted who sold everything in the spring drop.

**Share of beta users who sold everything in the drop, by how often they checked (synthetic)**

| How often they checked | Sold everything, % |
| --- | --- |
| Checked daily | 50 |
| Checked weekly | 25 |
| Checked monthly | 10 |

*Spring drop, months 5–6. Daily checkers: 25 of 50. Weekly: 20 of 80. Monthly: 7 of 70.*

**Sofia:** Half of the daily checkers sold, and only one in ten of the monthly ones?

**Grace:** Yes: 50% against 10%. A daily checker sees the fall again every evening. Each red number is a fresh small loss to feel.

> **Exercise:** In the beta, **25 of 50** daily checkers sold everything in the drop, and **7 of 70** monthly checkers did. How many times higher was the selling rate among daily checkers?

**Ethan:** So daily checking makes people sell. Easy: we just hide the numbers.

**Grace:** Careful. Our data shows they go together, not which causes which. Nervous people may simply check more. It's still a strong hint for design, and something we can test.

> **Exercise:** **True or false:** the beta data proves that checking the app daily **causes** users to sell in a fall.

## Losses hurt twice

**Sofia:** Why would one red evening matter so much? The fund was up for the year.

**Grace:** Because a loss weighs more than a gain of the same size. Most people feel a 100-dollar drop more sharply than a 100-dollar rise. That's loss aversion.

**Grace:** And it hurts twice: once when you see it on the screen, and again when you sell and make it permanent. The first sting passes. The second stays in the account.

> **Exercise:** A beta user held Zapas World Stock all year, never sold, and looked at it only once, at the end of the year. What did they see?

## Following the crowd into a theme

**Grace:** Now Ethan's banner. Robo Theme rose 33.1% in the first three months. 36 users bought it during the year, and 30 of them bought at the start of month 3 or 4, right after the run-up.

**100 dol. in Zapas World Stock vs Robo Theme through the beta year (synthetic)**

| Month | Zapas World Stock | Robo Theme |
| --- | --- | --- |
| 0 | 100 | 100 |
| 1 | 103 | 110 |
| 2 | 105.1 | 123.2 |
| 3 | 100.9 | 133.1 |
| 4 | 91.8 | 113.1 |
| 5 | 84.4 | 92.7 |
| 6 | 81.9 | 81.6 |
| 7 | 86 | 77.5 |
| 8 | 91.2 | 79.1 |
| 9 | 94.8 | 75.9 |
| 10 | 97.7 | 76.7 |
| 11 | 103.5 | 74.4 |
| 12 | 108.7 | 75.9 |

*Month-end values. Most theme buyers moved money at the start of month 3 or 4, after the run-up.*

**Sofia:** And then it dropped.

**Grace:** From the start of month 4 to the end of the year the theme lost 43.0%. Over the same months the world fund gained 7.8%. The crowd arrived exactly when the good part was over.

> **Exercise:** At the start of month 4 a beta user moved **1,000 dol.** from Zapas World Stock into Robo Theme. From then to the end of the year Robo Theme lost **43.0%** and the world fund gained **7.8%**. How many dollars **less** did the user have at the year end than if the money had stayed in the world fund?

## What a bubble looks like

**Grace:** Scale the same pattern up and you get a bubble. Our synthetic Tessaro Tech Theme index rose 2.56 times in years 30–34, even with a down year in the middle, then lost 55.3% over the next three years.

![Two loops: fear makes daily checkers sell in a fall and miss the rebound; the crowd buys a theme after its run-up and loses 43%.](https://productovi.com/courses/long-term-investing/diagrams/m7-l2-two-traps.png)

> **Exercise:** Put the stages of a typical bubble in order.

**Sofia:** Where does crypto fit in all this? Users will ask on launch day.

**Grace:** Crypto has no profits or interest behind it, so there's nothing to estimate a long-run return from. Its price is what the next buyer pays. That's speculation. If someone wants it, it goes in a small capped play part they can afford to lose.

> **Exercise:** Which banner for Robo Theme should Zapas show at launch?

## Your turn: the notification

**Ethan:** Fine, no "Trending". But I still want users to open the app. What do we send instead of the daily push?

**Grace:** Something worth opening: less often, with the long view first. And when the market falls, a message we've written in advance, not a red number at 9 p.m.

> **Exercise:** Which notification choices fit what the beta showed about checking and selling? Select all that apply.

**Alex Tutor:** Now write the replacement for Ethan's evening push: what it says, how often it comes, and what happens in a fall.

> **Exercise:** Ethan wanted a daily evening push "Your portfolio today: +0.4%". Propose a replacement in 3–5 sentences: how often it is sent, what it shows first, what it says when the market has fallen, and how you will check that it works. Use the beta numbers.

> **Key ideas**
>
> - In the beta, 50% of daily checkers sold in the drop, 25% of weekly and 10% of monthly ones. The data shows a link, not proof of cause.
> - **Loss aversion**: a loss is felt more than a gain of the same size, and it hurts twice: on the screen and on the sale.
> - **Herding and performance chasing**: 30 of 36 theme buyers bought right after a 33.1% run-up; the theme then lost 43.0% while the world fund gained 7.8%.
> - A **bubble** starts with a real story and ends with late buyers selling at a loss; our theme index rose 2.56× and then lost 55.3%.
> - Crypto and narrow themes are speculation: if at all, a small capped play part.

> **Educational, not advice**
>
> This lesson explains how investing works; it doesn't tell you what to buy. Investments can fall, and you can get back less than you put in. All Zapas and Tessaro data is synthetic. Check the current rules where you live or ask a licensed professional.

**Alex Tutor:** Next time: Zapas builds a "My plan" screen, rules written in calm weather for the day the market falls.

- Previous lesson: [The behavior gap: fund return vs user return](https://productovi.com/courses/long-term-investing/behavior-gap.md)
- Next lesson: [Rules made in calm weather: a one-page investment policy](https://productovi.com/courses/long-term-investing/investment-policy.md)

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