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Sam Sivarajan is a keynote speaker, independent wealth management consultant and author of three books on investing and decision-making.
Nvidia Corp. NVDA-Q remains at the centre of a heated investment debate. When the company reported record quarterly earnings at the end of the summer that were up 40 per cent from the previous quarter, the stock price immediately fell nearly 4 per cent.
A few days later, it dropped as low as US$167 as investors reacted to the lack of new H20 chip sales to China and a sequential decline in data centre revenue. It has since resumed its upward trajectory and is now trading at around US$187.
The results, while exceeding Wall Street’s expectations overall, left both bulls and bears more entrenched in their views. Optimists pointed to the continued AI boom and Nvidia’s dominant market share, while skeptics saw slowing growth and “so-so” results as ominous signals of a bubble ready to burst.
The recent surge in retail trading, accelerated by low-commission platforms and social-media influence, has created a perfect laboratory for observing a phenomenon known as psychological reactance: When people feel their investment choices are being criticized or constrained, they don’t just resist the advice; they often double down on the opposite position.
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This dynamic mirrors the broader political tribalism reshaping public discourse across the world. Markets and politics both run on the same psychological fuel. The harder each side pushes, the more the other side resists, regardless of policy merits.
Psychological reactance, first identified by researcher Jack Brehm in 1966, describes our automatic response when we perceive our freedom of choice as being threatened. In investing, this shows up in predictable ways. Tell someone their favourite stock is overvalued, and they’ll find 10 reasons why you’re wrong. Suggest that crypto is speculative, and they’ll point to every institutional adoption story. Recommend diversification to a momentum trader, and they’ll show you their latest winning streak.
This isn’t stupidity or stubbornness. It’s human nature protecting our sense of autonomy and competence. The problem is that in financial markets, as in much of life, this protective instinct can be self-destructive.
During the 2008 financial crisis, even sophisticated investors fell into this trap. Billionaires who built their fortunes on calculated risks suddenly couldn’t sleep holding blue-chip bank stocks. Yet when advisers presented logical arguments for staying invested, many clients became more determined to liquidate everything. More logic often just led to more resistance.
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Consider the typical response when someone suggests that frequent trading leads to underperformance. Research consistently shows that active traders underperform buy-and-hold investors by significant margins, as much as seven percentage points annually for heavy traders. But present this data to an active trader, and the most common response isn’t acceptance, it’s rationalization. They’ll explain how they’re different, how their strategy is unique, and why this doesn’t apply to them.
Algorithms help trap us in echo chambers. Reactance grows stronger in tribes – whether it’s crypto diehards, growth investors or indexing purists. We naturally seek information that tells us we’re right. This confirmation bias isn’t ignorance, it’s a way of protecting competence and belonging. Just as political echo chambers strengthen partisan positions regardless of evidence, investment echo chambers can reinforce costly financial biases.
The solution isn’t to ignore expert advice or abandon research, it’s to understand how reactance affects your decision-making and how to design around it. Here are some practical strategies that help manage this psychological reality:
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Question your resistance: When you feel defensive about criticism, pause and ask: “Am I rejecting this because the logic is flawed, or because I don’t like being told what to do?”
Seek collaborative input: Actively seek out opposing views, but frame it as exploration: “Help me think through what I might be missing.”
Use implementation triggers: Set preplanned rules. For example: “If tech exceeds 40 per cent of my portfolio, I’ll rebalance.” This helps avoid reactance – because they’re your rules. Rules feel less threatening when they come from you.
Diversify your information sources: Just as you diversify assets, diversify viewpoints. Don’t seek the “right” opinion – seek range.
The crypto market offers a case study. Despite volatility and regulatory uncertainty, many crypto investors became more committed to their positions when faced with skepticism from traditional finance experts. The more they were challenged, the more they held fast to their position.
Reactance also explains why contrarian investing strategies can be so effective. When the crowd is all-in and reactance is peaking, fundamentals can get overlooked.
Successful DIY investors understand their psychology. Fighting reactance rarely works – working around it does. The best investors don’t avoid challenge, they stay open to it.
This doesn’t mean abandoning convictions. It means knowing the difference between disagreement and defensiveness. In a world full of noise, that self-awareness might be your sharpest tool.
Politics reminds us just how deeply reactance runs. Just as political tribes become more entrenched when challenged, so do investors. Whether it’s avoiding dividend stocks as “boomer picks” or shunning growth as “speculative hype,” tribal identity often wins out over sound strategy.
Breaking free takes effort. Your investments are tools, not your personality. When criticism makes you defensive, that’s your cue – reactance may be in the driver’s seat.
As psychologist Daniel Kahneman noted: “The confidence people have in their beliefs is not a measure of the quality of evidence but of the coherence of the story they have constructed.” If reactance is writing your investment story, it might be time to revise the script.