Why We Feel Smarter After a Stock Falls: The Psychology of Market Regret

Picture this.

You buy a stock at ₹500.
It happily hovers at ₹510, ₹515… life is good.
Then suddenly one fine morning, it tumbles to ₹380 faster than a Zomato rider during peak hours.

What’s the first thing your brain says?

“Yaar, mujhe pata tha yeh girne wala hai.”

Of course.
Of course, your brain knew.
Just like India “knew” in hindsight that Dhoni would hit that 2011 World Cup six.

Don’t worry.
You’re not alone.
Every investor goes through this exact scene.
This is not stupidity.
It’s psychology.

Let’s break it down — with a smile, not shame.

Table of Contents

The CA That Wakes Up Only After Seeing a Loss

When a stock falls, your brain suddenly becomes a full-time auditor.

Checks past data
Rewinds conversations
Reviews every YouTube video you watched
Opens that old WhatsApp stock tip forwarded by your cousin from Dubai

Suddenly everything feels “obvious.”

But here’s the truth bomb:

Your dimaag is doing insider trading with your memory.

It is rewriting the past to protect you from regret.

And it’s completely normal.

This is exactly what behavioural scientists call hindsight bias:
The mind convinces you that “you knew it all along” just to reduce the emotional sting.

Hindsight Bias – Sabko Baad Mein Sab Yaad Aa Jaata Hai

Hindsight bias is that magical psychological effect where everything looks predictable after it has happened.

It’s like:

Seeing a cricket replay and confidently saying:
“Haan haan, clear LBW tha!”

Checking exam results and saying:
“Maine padha tha… thoda.”

Or watching a red candle and deciding:
“Arre yeh toh girna hi tha.”

Our brain loves rewriting history.
Because accepting “I didn’t know” hurts our ego.

So it creates a comforting lie:
“I knew it.”

This “I knew it” illusion creates an emotional cocktail of regret, overconfidence, and loss aversion, the exact trio responsible for most bad decisions in the market.

Loss Aversion – Ek Loss Ka Dard = Do Profit Ka Maza

Science says losing ₹1 hurts twice as much as gaining ₹1 feels good.

We Indians say losing feels like:

Spilling cutting chai on a new white shirt
Or finding out Ola Driver cancelled your ride after 20 minutes

Painful. Irritating. Irrational.

So when the loss happens, your brain starts manufacturing memories:

“Mera gut feeling sahi tha!”
“Kal hi socha tha bech doon!”
“Mujhe pata tha results kharab honge!”

No, it didn’t.
But it creates these thoughts to reduce the sting.

It’s not manipulation.
It’s self-care. However weird.

Loss aversion is so powerful that it literally bends memory, making you “remember” warnings that never existed.

The Mistake Loop – The Repeat Telecast of Every Retail Investor

This “I knew it” feeling isn’t harmless.
In fact, it quietly creates patterns — the kind we all fall into without realising.

Let’s break down the retail investor repeat telecast that plays on most of the demat accounts in this country.

1- Averaging Down Like It’s Big Bazaar Clearance Sale

A stock falls 10%.
Then 20%.
Then 30%.

Instead of asking “Why?”, we say:

“Cheap mil raha hai. Grab karlo!”

This is not analysis.
This is trauma mixed with discount instinct.

It feels like you’re getting a bargain,
but in reality, you’re collecting more of a falling knife —
like buying 5kg of onions just because the sabziwala said,
“Bhaiya aaj sasta hai.”

Averaging makes sense only when the business thesis is intact.
But regret-bias makes us average blindly,
as if lower price = higher intelligence.

This comes from hindsight telling you:
“I should have bought lower — now is my chance to fix it.”

2- Selling Winners Faster Than a Virat Kohli Single

Winner at +5%? SELL.
+8%? Definitely SELL.
+10%? You become spiritual:
“Profit booked, karma clean.”

Why?

Because regret-bias makes us think:

“Ab yeh gir jayega. I’d rather look smart now.”

So we sell the good stocks too early…
and keep the bad ones for too long.

Exactly the opposite of what wealth creation requires.

Past regret teaches the brain to fear losing a small gain —
so it forces an early exit to protect your emotions, not your wealth.

3- Holding Losers Like They’re Ancestral Property

A losing stock becomes:

“Long term investment”
“Conviction play”
“Mere father ne bhi nahi becha hota”

We hold it with the same emotion
with which Indian families hold old suitcases and broken chairs:

“Kaam aa sakta hai.”

Regret says:

“If I sell now, I’ll look stupid.”

So we don’t sell.
We just suffer.

This is denial mixed with hindsight:
“I knew it was good — it HAS to recover.”

4- Revenge Trading – The Bollywood Hero Mode

After a loss, we don’t want recovery.
We want revenge.

Exactly like a Bollywood hero who says:

“Paisa nahi… izzat ka sawaal hai.”

So we take impulsive trades —
bigger size, less logic —
trying to win back what the market took.

This is not trading.
This is an emotional street fight.

And the market always wins.

This happens because regret flips into urgency —
a dangerous emotional state where logic shuts down.

The Loop Continues…

Every time the stock moves wrong,
the same inner voice whispers:

“I knew it.”

But this illusion stops learning.
It keeps us stuck in the same emotional cycle.

And honestly…
If this strategy actually worked,
Har investor ke garage mein Lamborghini hoti.

The fact that we keep repeating these mistakes
proves only one thing:

We are human.
Not machines.
And definitely not psychic investors.

This is the full behaviour chain in action:

Stock move → Regret → Hindsight → Emotional reaction → Repeat mistakes.

How to Break the Regret Cycle

Here’s how to outsmart your brain (with love):

1. Write before you buy

Note why you’re buying.
Your future self will stop lying to you.

2. Define your exit rule

Stop-loss is not fear.
It’s haldi-doodh — uncomfortable but healing.

3. Accept uncertainty

Predicting markets is harder than predicting when the next Virat century will come.

4. Judge decisions by logic, not results

A good decision with a bad outcome is still a good decision.
Market kabhi kabhi bas… mood mein nahi hota.

5. Be kind to yourself

You are not running a hedge fund.
You’re trying to grow your savings.
Give yourself some grace.

Aap Bewakoof Nahi Ho. Aap Insaan Ho.

Every investor — from the chai-tapri trader to the Dalal Street veteran — has felt regret.

Market se bada koi teacher nahi.
It humbles everyone.
Ek baar nahi, baar-baar.

So the next time your stock falls and your brain whispers
“I knew it.”

Smile.
Pat your brain.
And say:

“Nice try. But let’s deal with reality, not memory.”

Understanding your mind won’t make you a billionaire.
But it will make you a calmer, wiser investor.

And honestly —>
that’s the real multibagger.

If you liked this blog, you might enjoy my previous ones as well:

👉 Why Cheap Stocks Trap You — The Psychology Behind It

👉Why Nifty Is at All Time Highs but Your Portfolio Is in the Basement

👉AI Won’t Crash Like 2000. It Might Correct Like 2008 — When Reality Finally Shows Up.

👉Strong USD Is Not a Modi Issue or a Congress Issue — It’s Global

Harsh Bhojwani

Website | + posts

Harsh is the creator of Dalal Street Lens, where he writes about investing, market behaviour, and financial psychology in a clear and easy way. He shares insights based on personal experiences, observations, and years of learning how real investors think and make decisions.
Harsh focuses on simplifying complex financial ideas so readers can build better judgment without hype or predictions.
You can reach him at imharshbhojwani@gmail.com