If You Earn More, You Decide Worse
Losing money is not the most dangerous moment in an investor's life. Winning is. It sounds absurd, I know. But I have come to believe that most large destructio
By Diego Alcalá · Mon Aug 17 2026 · investing
Losing money is not the most dangerous moment in an investor's life. Winning is.
It sounds absurd, I know. But I have come to believe that most large destructions of wealth do not begin with a bad streak — they begin with a good one. Loss makes us careful. Gain makes us arrogant. And in finance, arrogance always sends an invoice.
So the question in the title is not rhetorical. Is it possible that making more money makes us, quite literally, decide worse? The evidence — psychological and biological alike — suggests that it is.
The "winner effect" is not just mental, it is chemical
John Coates, a neuroscientist and former Wall Street trader, studied what happens inside a trader's body during a winning streak. He found that wins raise testosterone levels, and that testosterone, accumulated streak after streak, pushes the trader toward larger and larger risks. He called it "the winner effect." Success does not only make you feel invincible; it chemically prepares you to bet more.
That changes how I understand overconfidence. It is not merely a character flaw or a moral failing. It is, in part, a physiological response to success. Winning drugs us. And like any drug, it distorts judgment precisely when we believe our judgment is sharpest.
When we mistake luck for skill
On top of that chemical foundation sits an even costlier mental error: taking full credit for whatever went right. Psychologists call it self-attribution bias. When an investment works, it was my analysis, my vision, my instinct. When it fails, it was the market, bad luck, an unforeseeable event. Never me.
The problem is that this mental accounting is rigged — it only books the wins as personal merit. So after three or four fortunate investments, a person can end up believing they possess a skill they never actually demonstrated, because they never separated how much of the result was talent and how much was simply a rising market lifting every boat alike. In a bull market almost everyone looks like a genius. The trouble is that almost no one knows it.
When a streak becomes an identity
Believing you are good is one thing. Winning becoming who you are is a far more serious matter.
Jim Paul, a trader who lost more than a million dollars and then wrote a book about it, identified exactly this as the origin of his ruin. While he was winning, he internalized each victory as confirmation of his personal worth. Money stopped being an outcome and became a mirror of his identity. The consequence? When the market finally turned, he could not accept the loss, because accepting it meant admitting that he, as a person, was wrong. He clung to a losing position out of ego, not analysis. And he went down with it.
When a streak becomes an identity, losing stops being data and turns into a wound. And nobody makes good decisions from a wound.
House money and the invincibility trap
All of this leads to the most counterintuitive behavior of all: taking on more risk right after winning, which is exactly when we should be taking less. Richard Thaler documented it as "the house money effect." When people win, they begin treating those gains as not quite their own — like chips the casino "gave" them — and therefore risk them with a lightness they would never apply to their original capital.
It is a dangerous form of self-deception. A dollar won is worth exactly the same as a dollar saved through effort. But the brain does not treat them equally. After a good run we lower our guard, raise our bet sizes, and start confusing recent luck with a license to risk more. That is how many good investments become the prelude to a bad one — not because the investor lacked knowledge, but because they won enough to believe themselves invincible.
Why this matters more when you invest across a border
If you are investing outside your own country — and this is the case for most Canadians and Latin Americans who put capital into the United States — the winner effect has an extra edge to it.
A first successful operation abroad tends to be read as proof that you have understood the whole system: the market, the tax treatment, the legal structure, the tenant, the counterparty. In reality, one good outcome tells you very little about a jurisdiction you have been operating in for a short time. The gain arrives quickly; the lessons about how that system behaves in a downturn arrive much later.
There is also a currency layer that flatters the numbers. A Canadian investor measuring US assets in Canadian dollars, or a Mexican investor measuring in pesos, can post an excellent year in which a meaningful share of the return came from the exchange rate rather than from the decision itself. Self-attribution bias does the rest: the currency is forgotten, the skill is remembered.
The practical consequence is not to invest less abroad. It is to be very precise about why the last operation worked before scaling up the next one.
Success is a terrible teacher
The conclusion is that success is a terrible teacher. Defeat at least forces us to review what we did wrong. Victory invites us to review nothing — after all, why question what is working? That is why the mature investor distrusts their own winning streaks as much as their drawdowns. They know the moment of greatest risk does not arrive when everything is going badly, but when everything is going far too well and they start believing they deserved all of it.
I often say the investor's greatest enemy is themselves. Today I would put it differently. The greatest enemy is not the investor who loses and doubts, but the one who wins and stops doubting.
And in your own case: did your best investment decisions come after a win that inflated you, or after a loss that forced you to think?
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This content is informational and educational. It does not constitute investment, legal, tax or immigration advice, nor a recommendation to buy or sell any asset. Past returns do not guarantee future results. Consult a licensed professional before making decisions about your capital.
Read the original Spanish version by Diego Alcalá: Si ganas más, decides peor.