29 Sept 2025
Many investors lose money and confidence due to inconsistent strategies, fluctuating between various risk levels and time horizons without a clear plan. This problem can be effectively addressed by applying principles from behavioral economics, specifically 'mental accounting,' to segregate investment capital into distinct portfolios with tailored strategies.
Many investors frequently switch between active and passive, short-term and long-term, or high and low-risk investment approaches. This lack of a consistent strategy often results in significant financial losses and a decrease in self-esteem, leading individuals to seek a 'treasure map' for success.
The root cause of inconsistent investing lies in 'mental accounting,' a concept from behavioral economics championed by Nobel laureate Richard Thaler. Individuals mentally categorize money for different purposes, such as rent or investments, and unconsciously assign varying risk tolerances to each mental account.
Applying mental accounting to financial markets involves opening separate accounts or creating distinct portfolios, each with its own investment objective, outlook, and strategy. This segregation prevents emotional mixing of funds and ensures adherence to each segment's intended risk profile.
A significant portion (80-90%) of investment capital should be protected from high risk and 'black swan' events, as advocated by Nassim Taleb. This is achieved through long-term strategies like Dollar-Cost Averaging (DCA), careful risk management, and defensive option usage, aiming for moderate, consistent returns that may be slightly below market index performance.
A smaller, completely separate portion (10-20%) of capital can be allocated for higher-risk, potentially higher-reward investments. This allows investors to pursue speculative opportunities and experience excitement without jeopardizing their core capital or compromising the stability of their main portfolio.
For the high-risk allocation, investments should be made in situations with a positive 'expected value' (Omid Riazi). This involves using economic data, on-chain metrics, and technical analysis to identify contrarian opportunities that offer a high risk-to-reward ratio, such as risking $100 for a potential $3000 profit.
Focusing on the investment process and consistently applying strategies with positive expected value, rather than individual trade outcomes, leads to long-term profitability. Even if individual high-risk trades fail, repeating sound decisions over time ensures overall success, akin to profitable lottery strategies in the long run.
The segregated portfolio approach provides significant psychological tranquility, as a large portion of capital remains secure with a clear strategy. The smaller, riskier portion satisfies the desire for excitement without triggering irrational behavior, encouraging disciplined data analysis during free time.
Investors are encouraged to thoroughly research concepts like 'expected value' (Omid Riazi) and advanced investment strategies. Foreign communities and resources are highly recommended for their comprehensive and in-depth coverage, which often surpasses current Persian-language materials.
By separating a large portion of capital for risk protection and a smaller portion for calculated, high-expected-value risks, investors can achieve financial stability and psychological calm while pursuing growth.
| Aspect | Problem | Solution |
|---|---|---|
| Investment Behavior | Inconsistent strategies and emotional decision-making lead to financial losses. | Apply 'mental accounting' to create segregated portfolios with distinct strategies. |
| Core Capital (80-90%) | High exposure to market volatility and 'black swan' events. | Protect with long-term, managed strategies (e.g., DCA), aiming for moderate, stable returns below market index. |
| High-Risk Capital (10-20%) | Desire for high returns often jeopardizes main capital. | Allocate a separate portion for calculated, high-expected-value risks without affecting core investments. |
| Decision-Making for Risk | Gambling or impulsive high-risk trades. | Base high-risk entries on positive 'expected value' (omid riazi) and a process-oriented approach. |
| Learning & Development | Limited in-depth resources in the local community. | Utilize foreign communities and academic resources for comprehensive understanding of advanced strategies. |
