The deeper you dive into numbers, ratios, fair values and strategies, the clearer one uncomfortable truth becomes. The most dangerous opponent is not sitting on Wall Street, not at central banks and not in hedge funds. The most dangerous opponent sits in your own head. Fear, greed, hope, panic, frustration and that strange swing between megalomania and self doubt accompany almost every investor, no matter how many books they have read. This is exactly the territory that behavioural finance deals with, the study of human missteps in the markets.

In theory you often hear that markets are efficient and that all information is instantly priced in. In practice you see speculative bubbles, sudden crashes and irrational exaggerations in both directions. If markets were truly perfectly rational, you would not see absurd hypes, penny stock bubbles or phases where losses are ignored simply because people are “sure it will come back”. Reality shows something different. Markets are made of people, and people very rarely act as logically as they later describe it in their own stories. The market is very human.

That is why a clear rulebook is so important. A good strategy is not just formulas and tools. It is also a kind of support structure for the mind. You need something that holds you in place when everyone around you is getting nervous. The Fairvalue Calculator method is not only a tool to find undervalued stocks. It is also a mental anchor. It offers you a fixed point of reference in the middle of noise, headlines and gut feelings. You do not just see that the price is falling. You see how far it has moved away from the inner value. That perspective helps you to make decisions on more than emotion alone.

Even with that, everyone makes mistakes. Some of those mistakes hurt so much that they leave a deep mark. One of mine involved a company that sounded brilliant at first glance. It was a US company that sold a cleaning sponge with the soap already built in. No bottle of detergent needed, the sponge foamed and foamed, at least in the advertisements. There was even a photo of a huge billboard in a baseball stadium. New product, big stage, great story. In your imagination you could already see millions of households using exactly that sponge. So I bought the stock. Only a few months later the company was insolvent and it became clear that more money had gone into advertising and show than into a real, sustainable business model. What remained was a worthless penny stock position and the realisation that colourful stories and supposedly brilliant products are no basis for investing.

The most important lesson from that experience is simple. Stay away from penny stocks and shady mining stocks that are built only on hope, rumours and aggressive marketing. The low price per share looks tempting because you can buy so many units, but the risk is enormous. These stocks are often driven up by fake success stories, newsletters and forum posts, only so that others can get out in time and leave the last buyers with the losses. This mistake has already been made. Nobody needs to repeat it.

A very common psychological trap is the reversed risk reward behaviour. As soon as a stock rises quickly, you are tempted to take profits far too early because it feels good to have “secured something”. When the price falls, the storytelling begins. You reassure yourself that it is just a small dip, that “it will come back”, and you hold positions far too long. Profits are capped and losses are allowed to run. That is exactly the opposite of what you should be doing. The fair value approach helps to turn this pattern around by showing clearly whether the drop might be an overreaction or whether the stock was simply too expensive in the first place.

Things become especially brutal during crashes. Prices suddenly fall day after day. The media is full of doom scenarios and experts talk about systemic crises. In moments like these it feels rational to sell in order to “prevent worse”. Looking back, you usually see that markets tend to turn up again relatively soon after big drops. Those who sell at the bottom often miss exactly the strongest recovery moves. Historically, crashes are mostly short term spikes in a long term rising trend. That does not change the fact that a drawdown of 30 or 40 percent feels terrible in a real portfolio. It does explain, however, why calm and a clear plan are so important.

A sensible strategy is to build up cash reserves before markets get very expensive. If you have some liquidity on the side, you can buy selectively during downturns instead of just watching. Instead of investing everything at once, you can enter in tranches with regular, equal amounts. This smooths your entry price, spreads the timing risk and takes away the pressure to hit the perfect bottom. You avoid fear of missing out by accepting that you will never catch every single point but that you will invest regularly and with discipline.

Overconfidence can be at least as dangerous as panic. Once a system has worked for a while, you are tempted to take on more risk. You start trading leveraged products, certificates or options. On paper it looks brilliant. Small movements in the index turn into large movements in your account. Maybe the first trades even work. The ego grows faster than the equity. It starts to feel as if you have finally cracked the code. You check prices while brushing your teeth, in the bathtub, in every spare minute. Everything revolves around a number on a screen.

At some point the moment comes when the market does something different than you expected. The leverage then works like a multiplier in the wrong direction. Instead of small fluctuations you see losses within hours that eat up your account. No matter how many indicators, candlesticks or trend lines you used, the result is the same. Stress, sleepless nights and an emptied account. Looking back you realise that the energy, time and nerves you spent were completely out of proportion to the outcome.

The most important breakthrough does not come from a particularly clever analysis, but from a look at my old, almost forgotten portfolio. It was a demo account, at some point filled with solid blue chips and then left alone for years. No timing, no derivatives, no nightly chart studies. Just good companies that were bought and then left to do their work. And it was exactly this “forgotten portfolio” that multiplied over the years, while the actively traded account was at one point completely wiped out. The contrast is brutally honest. Patience and simplicity beat constant action and the thrill of trading.

The same lesson repeats in crises like 2008. You think you are prepared, you know the instruments, you know how to profit from falling prices, you build short positions and hit precisely the turning point. The market reverses and the brilliant idea turns into another painful loss. At the latest then you understand that market timing is almost impossible to win at over long periods and that it is better to rely on a robust, long term strategy.

Taken together, these experiences lead to a sober conclusion. The fair value approach only works if you apply it consistently. The method is deliberately simple so that it remains usable in everyday life. It leaves little room for creative exceptions and emotional special cases. If you constantly try to “improve” it, squeeze out a little more performance or secretly start gambling again on the side, you risk destroying exactly what makes it so valuable. Backtests and personal history suggest that a long term excess return in the range of around fifteen to twenty percent per year is already an excellent result. You do not need more and you will not realistically get more on a sustained basis. Compound interest does the rest.

In the end the main task is not to find the perfect formula, but to keep yourself under control. A solid strategy, clear rules, an honest understanding of your weaknesses and enough humility to learn from your mistakes are worth far more than the next “secret stock tip”. The Fairvalue Calculator method gives you the structure and the numbers. The rest you have to bring yourself. Patience, honesty and the willingness to stick to your plan even when things get turbulent.