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Why do even seasoned professionals make predictable, costly mistakes in financial markets, and what can individual investors do to protect themselves from their own psychology? In this episode of the Bondfish Human Finance Podcast, host Renat Dovidenko, CFA, CQF, CDO and co-founder of Bondfish, is joined by Oksana Mustiatsa, CFA, Chief Investment Officer at a family office with over ten years of experience across both the buy side and sell side of financial markets. The conversation covers the foundations of behavioural finance, dismantles three persistent investment myths, and takes a close look at five cognitive biases that routinely cost investors money.
The Discipline
Oksana Mustiatsa opened by explaining why behavioural finance has become such a central part of her professional practice. Classical financial theory, she noted, rests on the assumption that market participants act rationally, yet real markets are populated by human beings subject to fear, fatigue, stress, and greed. Behavioural finance sits precisely at the intersection of these two realities, she argued, drawing on psychology to explain the gap between how investors should act and how they actually do.
The discipline is not merely an academic curiosity, Mustiatsa emphasised. Understanding the shortcuts and blind spots that influence decision-making has direct, practical value: it can help investors avoid losing money in certain situations, and in others it can create genuine opportunity. The key, she suggested, is a willingness to acknowledge that one's own reasoning capacity is limited, and that emotions can seize control of the decision-making process without warning.
“Just by admitting that your reasoning power is limited, and that you can sometimes be guided by something beyond logic, it could be very powerful.
— Oksana Mustiatsa, CFA, Chief Investment Officer
Renat Dovidenko drew a parallel between this idea and his own experience studying behavioural finance during his master's degree in investment management. Having worked in markets before encountering the discipline formally, he described it as a revelation: a framework that finally explained behaviour he had observed but could not fully articulate.
Common Misconceptions
Before turning to specific cognitive biases, Mustiatsa addressed three widely held beliefs about investing that she considers not only incorrect but actively harmful to investor outcomes.
The first is the conviction that the market can be reliably timed. Investors, she observed, routinely sell during corrections driven by the psychological tendency to project losses further than the evidence warrants, typically at the very moment when buying would be most advantageous. She cited research suggesting that even an investor who invested exclusively at market peaks, immediately before every major crash, would still generate long-term returns that beat inflation. The compulsion to exit and re-enter at the right moment, she argued, is one of the most financially destructive impulses individual investors act on.
The second myth is the automatic equation of a price decline with a buying opportunity. A falling price is not inherently a signal that an asset is cheap or undervalued; it may simply reflect deteriorating fundamentals. Mustiatsa pointed to the asymmetric mathematics of losses as a reason to think carefully before acting on this instinct: a stock that falls 90% must subsequently rise 900% just to restore the original value. In today's market, she and Dovidenko agreed, momentum strategies have proved more consistently rewarding than reflexive contrarianism.
The third myth is confusing bull-market luck with genuine skill. Extended periods of strong equity performance create conditions in which almost any strategy looks brilliant, and overconfidence spreads quickly. Mustiatsa's test for any proposed trading strategy is straightforward: how did it perform during the last significant correction, and how is it expected to perform during the next one? Because corrections are inevitable, she argued, a strategy that cannot survive one offers little real protection.
“If you want to double something, be prepared for the risk to lose everything.
— Oksana Mustiatsa, CFA, Chief Investment Officer
Practical Application
Mustiatsa and Dovidenko then explored five psychological biases that the academic literature on behavioural finance has documented extensively, each with direct consequences for how people manage their portfolios.
Loss aversion. The psychological pain of a loss registers with roughly twice the intensity of the pleasure generated by an equivalent gain. This asymmetry leads investors to hold losing positions long after the fundamentals justify selling, and to avoid necessary portfolio adjustments out of an unwillingness to realise a loss. Mustiatsa noted that she uses maximum drawdown tolerance, rather than standard deviation, as her primary risk measure when working with clients, precisely because it captures the dimension of loss that people actually feel.
Overconfidence bias. Extended bull markets are particularly fertile ground for overconfidence, as rising prices reward even poorly reasoned decisions and create the illusion of skill. Mustiatsa observed that this bias is not confined to inexperienced retail traders; seasoned portfolio managers with decades of experience are equally susceptible, and the consequences of overconfident decision-making at scale can be severe. The antidote, she suggested, is an ongoing practice of challenging one's own investment theses rather than reinforcing them.
Hindsight bias. Looking back at a chart, the correct decision always appears obvious. This retrospective clarity is an illusion: the brain reconstructs memory to suggest that the outcome was foreseeable, when in reality it was not. Dovidenko illustrated the point by referencing studies showing that investors who do not actively manage their portfolios, including those who simply forget they hold positions, consistently rank among the strongest performers, precisely because they avoid acting on false certainty about what will happen next.
Confirmation bias. When an investor has taken a position in an asset, the news flow surrounding that asset is no longer processed neutrally. Information that supports the existing view is absorbed and amplified; information that contradicts it is discounted or ignored. Mustiatsa described her practice of deliberately seeking out the strongest opposing arguments for any position she holds, including sell-side research with which she disagrees, on the grounds that understanding the bear case reveals what the market will focus on if sentiment turns.
Survivorship bias. The stories that dominate financial media and social platforms are almost exclusively stories of exceptional success. The far larger population of investors who suffered significant losses remains invisible. This selective visibility distorts expectations about what is achievable and what is normal, leading retail investors to benchmark themselves against a small minority of outsized winners rather than against the realistic distribution of outcomes. Mustiatsa pointed to the cryptocurrency market as a particularly vivid example: social media amplifies the rare cases of extraordinary gains while the much larger cohort of those who lost their capital goes unreported.
Diversity of Thought
In the closing section of the conversation, Dovidenko raised the question of whether women bring distinctive strengths to investment decision-making. Mustiatsa drew on a well-known academic paper examining the trading behaviour of retail investors, which found that female investors do not necessarily outperform because of superior analytical skill or intuition; rather, they tend to trade less frequently, reflecting lower levels of overconfidence and a more conservative approach to risk. On a risk-adjusted basis, the research suggests, this temperament produces better outcomes across most market environments.
Both guests were careful to note that the observed differences are likely at least as much a product of social conditioning as of any intrinsic gender distinction, and that neither profile is inherently superior. The deeper point, they agreed, is about diversity of opinion within any decision-making group. Dovidenko described his own experience on a trading desk where a female colleague was consistently sought out for a contrarian view, precisely because her perspective differed from the prevailing consensus. In investing, as in portfolio construction itself, diversification of perspective reduces the risk of groupthink.
“It boils down to two things: calibration of risk and overall assessment of trading frequency and how you distribute your finances.
— Oksana Mustiatsa, CFA, Chief Investment Officer
Key Takeaways