Psychological biases and value creation in stock investing

Investing in the stock market is not a zero-sum game, as value is created through company growth, new products, and increased profits rather than merely transferring wealth between parties. When an investor buys a share, they provide capital that companies use to expand, hire employees, and innovate, which can increase the overall value of the business.

Despite long-term market growth, approximately 70 percent of retail investors lose money due to psychological biases rooted in evolutionary biology. Three primary cognitive errors identified include loss aversion, where the pain of a loss is felt significantly more intensely than the joy of a gain; herd mentality, which leads investors to follow mass trends like the 2021 GameStop hype; and confirmation bias, where individuals seek out information that supports their existing beliefs.