** The Cost of Self-Justification in Investing **

Illutration created and copyright by Drake Kim

Why Investors Blame the Market Instead of Themselves

There is an unchanging rule in economics: Those who make money stay quiet, while those who lose money make noise. But what’s more important than the noise itself is its content. Very few people honestly acknowledge why they failed. Instead, human nature pushes us toward self-justification.

In the 1920s, one of the fastest-growing industries in the U.S. was the stock market. Borrowing money to invest seemed like a foolproof way to get rich. People on the streets would say, “There’s no reason stocks won’t go up.” But in 1929, when the market collapsed, the same people shouted in unison, “It’s not my fault. The market betrayed us!” But did the market really betray them?

Failed investors blamed economists, the government, and even fate, justifying their poor decisions. The phrase “Who could have predicted the Great Depression?” spread like wildfire. But here’s a crucial fact: Just before the crash, some investors quietly sold their stocks and increased their cash holdings. Did they have some kind of supernatural foresight?

"The truth is uncomfortable, but lies are far more expensive." – Howard Marks

Illutration created and copyright by Drake Kim

Self-Justification: The Silent Trap in Investing

Self-justification is a natural human instinct, and the economy skillfully exploits it. The same pattern repeated during the 2008 financial crisis. Investors who profited from subprime mortgages believed they were geniuses, while those who lost money blamed “the system.” Yet, in the same crisis, some escaped while others went bankrupt. The only difference? Those who avoided collapse refused to deceive themselves.

In 2024, history is repeating itself. Real estate, cryptocurrency, AI stocks—every market is inflated. Yet, people continue to say, “This time is different.” But if history has taught us anything, it’s that “this time is different” has never been true.

The key to successful investing is objectivity. But the human brain resists objectivity. Admitting a loss damages our pride, and our instincts push us to avoid that pain—creating the trap of self-justification.

Illutration created and copyright by Drake Kim

How to Escape the Trap

To avoid self-justification, emotions must be eliminated from investing. Accept losses, recalculate, and learn to embrace mistakes. The simplest way? Make “I could be wrong” a habit.

"Admitting mistakes is not failure. It is the only beginning of true learning." – Charlie Munger

Markets will always change, and human psychology will always repeat itself. The moment you fall into self-justification, real opportunities disappear. The goal is not to outsmart the market but to stop deceiving yourself.

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