[Free] Fear and Greed Are Sabotaging Your Portfolio

Here’s How to Break Free

Mar 21, 2025

Your Portfolio’s Worst Enemies Are Inside Your Head

Every investor wants to believe they make rational decisions based on logic and analysis. But let’s be honest—your biggest losses didn’t come from bad research. They came from bad timing. You sold in a panic. You bought in a frenzy. That’s fear and greed, the twin forces that quietly wreck even the most well-reasoned investment strategies. If you're managing your own money, understanding how these emotions hijack your decision-making isn’t optional—it’s the difference between compounding wealth and compounding regret.

One reason I write this Substack is to keep myself grounded and accountable when markets get turbulent. Writing forces clarity. It’s a tool I use to stay rational—and one I strongly recommend you adopt. You don’t need to publish it or share it. A private notebook works just fine. Still, I find it incredibly rewarding that my own investment journaling helps others grow their portfolios too.

1. Why Fear and Greed Never Go Away (and Why That’s Okay)

You can’t eliminate fear or greed—they’re hardwired into your biology. Fight or flight helped our ancestors survive, but in markets, those same instincts can sabotage your portfolio. The solution isn’t to suppress them. It’s to anticipate them, prepare for them, and make sure they never control your decisions.

There’s a reason the tools of intelligent investing exist. Techniques like diversification, rebalancing, and margin of safety weren’t designed to maximize excitement—they were created to protect you from yourself. These aren’t just technical levers; they’re emotional shock absorbers.

If fear and greed are always in the room, you need to build a process that consistently overrides their influence—before they cost you real money.

2. The Dangerous High of Greed—And How to Stay Grounded

Greed shows up as FOMO. It whispers that you're missing out, that this time is different, and that if you don’t act now, you’ll be left behind. It’s the voice that bought tech stocks in 2000, housing in 2007, and meme stocks in 2021. Greed seduces you into chasing prices, ignoring risk, and breaking every rule you’ve set.

How to manage greed:

Predetermine your entry and exit prices based on intrinsic value, not headlines. This is easier said than done, which is why we use various valuation techniques at Astute Investor's Calculus. With experience, you’ll get better.
Never buy something just because it’s gone up—reassess its fair value. Markets swing to extremes and take our emotions with them. A disciplined valuation method helps you avoid emotional decisions—and profit from the froth.
Set maximum position sizes to prevent overexposure in manic markets. Whether you follow a simple rule like “no more than 5% in any one stock,” or apply more advanced tools like the Kelly Criterion, stick with a system that limits your downside.

But if greed is the manic side of investing, fear is the crash that often follows—and it can be even more destructive.

3. Fear Paralyzes You Right When Action Matters Most

Fear doesn’t just hurt you when markets fall. It cripples you before they fall—keeping you in cash while opportunities multiply. And when prices finally plunge, fear convinces you it’s just the beginning of the end. Instead of buying value, you freeze or sell at the bottom.

How to combat fear:

Run pre-mortems: Ask, “What would have to happen to make this stock a bad investment?” Understand the difference between short-term price movement and long-term value. Over time, prices tend to converge with intrinsic value.
Use margin of safety to build resilience into your decisions. This cushions you against unknowns and reduces stress, giving you confidence to hold your ground.
Build watchlists during calm periods so you can act fast when volatility spikes. Good stocks aren’t always good buys—but if you’re ready, you’ll know exactly when they are.

Fear and greed thrive in uncertainty. The antidote isn’t perfect information—it’s a repeatable, disciplined process.

4. Build a Process That Overrules Emotion

Emotions are strongest when your process is weakest. If you don’t know your strategy, you’ll chase headlines. If you don’t know what your portfolio is supposed to do, you’ll panic when it doesn’t do what you expect.

To build emotional immunity:

Write an investment policy that outlines what you buy, when, and why. You’ll refer to this again and again—especially when the noise gets loud.
Set rules for position sizing, portfolio allocation, and trimming winners or losers. Portfolio maintenance isn’t flashy, but it’s what drives returns. Even if you copied Buffett’s stock picks, poor allocation could leave you flat while he compounds to the stratosphere.
Revisit your thesis—not just the price—before making changes. Fundamentals evolve. Your strategy must evolve with them.

Once your process is in place, learn to trust it. That trust only comes from experience.

5. Use Position Sizing to Stay Sane

Too much size in one position, and you’ll obsess over every tick. Too many similar positions, and a downturn will feel like free fall. Smart position sizing protects more than your capital—it protects your peace of mind.

Why this works:

Smaller positions reduce both panic and overconfidence.
Diversifying across strategies and timeframes buffers your portfolio during both boom and bust cycles.

Set some basic rules for sizing, sector exposure, and correlations—and stick to them.

6. Learn to Do Nothing—When Nothing Is the Smartest Move

"Don’t just do something—stand there."

Some of your best moves will be non-moves. Holding cash when no bargains appear. Holding winners as their value compounds. Ignoring the headlines during a crash. Inaction takes discipline, but it often pays the most.

Most price movement is noise. The long-term trend will be determined by a company’s intrinsic value. Lock that truth into your mind.

How to master inaction:

Track your decisions in a journal—especially the ones you didn’t act on. Note your thesis, intrinsic value, and expected catalysts.
Review past trades to see where emotion played a role. Where did you deviate from your process? What were the consequences? What will you do differently next time?

Doing nothing is a decision. Often, it’s the smartest one you’ll make.

Final Word: Turn Fear and Greed Into Your Competitive Edge

You won’t beat fear and greed by pretending they don’t exist. But you can turn them into signals—flashing warnings that it’s time to fall back on your process.

Most investors never figure this out. The ones who do? They’re the ones still compounding when the next crash hits. The market rewards discipline, not emotion.

So make sure the loudest voice in your portfolio isn’t panic or euphoria—it’s you.