Let me tell you about Dave. In November 2021, Dave transferred $50,000 from his savings account into his brokerage account and bought a portfolio of ARKK, Bitcoin at $69,000, and a handful of meme stocks that Reddit promised would “go to the moon.”
Today, Dave’s portfolio is worth about $12,000. He’s down roughly 76%. Dave hasn’t checked his account in months because it makes him physically ill.
Here’s the thing: Dave isn’t stupid. Dave has a master’s degree. Dave pays his taxes on time. Dave flosses semi-regularly. Dave is, in most respects, a reasonably intelligent human being.
Dave is also me. Dave is also you.
Understanding why investors buy the top isn’t about mocking people like Dave. It’s about recognizing that the same psychological traps that snared him are lying in wait for all of us. The biases that lead to buying the top aren’t character flaws. They’re features of a brain that evolved to survive saber-toothed tigers, not margin calls.
Let’s perform a psychological autopsy on Dave’s decision. Not to ridicule him, but to make sure I don’t become the next body on the slab (and you don’t either).
The Timeline: Reconstructing the Crime Scene
To understand buying the top, we need to walk through exactly how Dave got there. Because nobody wakes up and decides to light money on fire. It happens gradually, then suddenly.
Phase 1: The Setup (Early 2020 to 2021)
The COVID crash hit in March 2020. Dave watched the market fall 35% in a month and did what most people do during crashes: nothing. He froze. He told himself he’d “wait for clarity.”
The market bottomed on March 23, 2020. Then it started climbing. And climbing. And climbing.
Dave watched from the sidelines as the S&P 500 ripped 70% higher over the next 18 months. He watched as his neighbor bought a Tesla with “stock market money.” He watched as his coworker casually mentioned that her Roth IRA was “up like 200% or something.” The average retail investor underperforms the S&P 500 by 6.1% annually over long periods, largely because of timing mistakes like buying the top.
The “everyone’s getting rich but me” feeling started as a whisper. By summer 2021, it was a scream. Research shows that between 69-84% of retail investors experience losses, with buying the top being a major contributor to this depressing statistic.
Phase 2: The Pressure (Summer to Fall 2021)
Dave’s brother-in-law, a guy who previously thought “diversification” meant owning both Ford and GM, wouldn’t shut up about his gains. He’d discovered “the stonk market” and made six figures trading options. At family dinners, he’d casually drop terms like “gamma squeeze” and “diamond hands.”
Meanwhile, Dave’s social media feeds transformed into a non-stop parade of gain porn. Everyone was posting screenshots of their portfolios. Everyone was getting rich. The catchphrases were everywhere: “have fun staying poor,” “we’re still early,” “this time is different.”
The narrative shifted in Dave’s mind. What started as “this seems crazy” slowly became “maybe I’m the crazy one for not participating.”
Phase 3: The Breaking Point (November 2021)
Cathie Wood was on CNBC predicting ARKK would quadruple. “Bitcoin to $100,000 by year-end” headlines were everywhere. Dave’s FOMO had reached a fever pitch.
On November 9, 2021, Dave capitulated. He transferred $50,000 from his savings (his emergency fund, technically) and bought, effectively buying the top of multiple asset classes simultaneously:
- ARKK at $150 (now trading around $45)
- Bitcoin at $69,000 (now around $40,000)
- A handful of meme stocks at their absolute peaks
Dave bought the top. Not near the top. Not kind of high. The absolute, tippy-top, peak-of-the-mountain, nowhere-to-go-but-down top. The market peaked within days of Dave’s purchase, proving that buying the top isn’t just bad luck, it’s a predictable pattern of human behavior.
The Evidence: Behavioral Biases Found at the Scene
Let’s examine the psychological evidence found at the scene of Dave’s financial crime against himself. Each bias is like a fingerprint, leaving its mark on the decision.
Exhibit A: FOMO (Fear of Missing Out)
FOMO is the emotional response to seeing others profit while you’re not participating. It’s not just envy. It’s a specific type of pain that comes from feeling excluded from gains.
According to a 2025 academic study published in the Journal of Theoretical and Applied Electronic Commerce Research, a staggering 96.99% of retail investors admit to experiencing the complete FOMO cycle. You’re not alone in feeling it. You’re actually in the vast majority.
The FOMO loop follows a predictable pattern:
- Anticipation: You see others winning and feel like you’re late to the party
- Compression: You skip due diligence and start asking “Should I get in NOW?”
- Pain Response: When the trade moves against you, it feels worse than it objectively should
- Reset: You exit, rationalize, and promise yourself you’ll be “faster next time”
Dave was caught in this loop for months before he finally broke. The pressure of watching others get rich while he sat in cash became unbearable.
Exhibit B: Recency Bias
Our brains are prediction machines that assume recent trends will continue forever. After 18 months of watching markets only go up, Dave’s brain literally couldn’t imagine them going down.
“Stocks only go up” became a belief system, not just a meme. Dave ignored 2000 and 2008 because, in his mind, “this time is different.” The recent past had overwritten his understanding of historical market cycles.
Recency bias is why every bubble feels unique while you’re in it. The dot-com bubble had “new economy” rhetoric. The housing bubble had “real estate never goes down.” Dave’s bubble had “disruption” and “Web3.” This bias makes buying the top feel rational, even inevitable, in the moment.
Exhibit C: Herd Mentality
Social proof is one of the most powerful psychological forces. If everyone’s buying, it must be right, right?
The danger, of course, is that retail investors are often the last ones to the party. By the time Dave heard about ARKK from his brother-in-law, the smart money had already made their money and was heading for the exits.
Media amplification creates feedback loops that make herd mentality worse. When every headline is bullish, every talking head is optimistic, and every social media post is celebrating gains, it becomes genuinely difficult to maintain independent thinking.
Dave wasn’t following the herd because he’s a sheep. He was following the herd because humans evolved to follow the herd. For most of history, following the group was a survival strategy. In markets, it’s a wealth destruction strategy.
Exhibit D: Loss Aversion Asymmetry
Daniel Kahneman won the Nobel Prize in Economics for his work on prospect theory, which includes the concept of loss aversion. His research showed that people feel the pain of losses approximately twice as intensely as the pleasure from equivalent gains.
But FOMO creates a bizarre asymmetry. “Missing out” on gains feels like a loss, even when you haven’t invested a dime. Dave felt like he was losing money by sitting in cash while others got rich.
This is where neuroscience comes in. Your amygdala, the brain’s fear center, fires in about 12 milliseconds. Your prefrontal cortex, where rational analysis happens, needs about 500 milliseconds to respond. By the time logic shows up to the meeting, fear has already made the trade.
Your brain doesn’t know the difference between a lion and a margin call. It just knows something is threatening, and it responds before you can think. This biological reality is why buying the top feels so urgent in the moment, even when it’s objectively the worst possible time to invest.
Exhibit E: Confirmation Bias
Once Dave decided he was going to invest, he only sought information that confirmed his decision. He dismissed bearish analysts as “haters” and “not getting it.” He followed Twitter accounts that validated his bullish thesis. He joined Reddit communities that celebrated the same stocks he wanted to buy.
Algorithmic echo chambers made this worse. Once Dave searched for ARKK or Bitcoin, every platform served him more bullish content. The algorithms don’t care about your financial wellbeing. They care about engagement. And nothing drives engagement like confirming what people already want to believe, which makes buying the top feel like the smart move.
The Diagnosis: Why Smart People Make Dumb Investment Decisions
So why did Dave do it? Why do any of us do it? The answer lies in a fundamental mismatch between how our brains evolved and how modern markets work.
Evolutionary Mismatch
Our brains evolved over two million years on the African savannah. They were optimized for survival, not for managing 401(k)s. When our ancestors saw grass moving, they didn’t analyze whether “historically, 73% of grass movements are wind related.” They ran. And the ones who ran are our ancestors because the analysts got eaten.
This same threat-detection system now processes red numbers on a screen. Your amygdala sees a dropping portfolio and triggers the same fight-or-flight response it would use for a predator. The result? Panic selling at the bottom and FOMO buying at the top.
The 12ms vs. 500ms Problem
Let’s talk about those response times again because they’re crucial. Your amygdala fires in 12 milliseconds. Your prefrontal cortex needs 500 milliseconds. That’s a 42x speed advantage for emotion over logic.
By the time you’ve rationally analyzed whether an investment makes sense, your emotional brain has already decided. The finger hits the buy button before the thinking brain can intervene.
This is why willpower alone isn’t enough to prevent buying the top. You can’t out-willpower two million years of evolution. Trust me, I’ve tried. You need systems that work around your biology, not against it.
Social Media Accelerant
Previous generations had bubbles, but they didn’t have infinite-scroll feeds of gain porn. Social media has turned FOMO into a constant, ambient pressure.
Before social media, you might hear about your neighbor’s stock gains at the occasional barbecue. Now you’re bombarded with them every time you check your phone. The comparison is constant. The pressure is relentless.
A 2024 study in the International Review of Financial Analysis found that “retail investors easily escaping from the bottom of the trend but clustering at the top.” Social media hype and attention bias exacerbate this behavior. We’re stimulated by sentiment at exactly the wrong times.
Regret Aversion
Perhaps the most powerful force driving Dave’s decision was the fear of future regret. He could imagine the pain of missing out on gains far more vividly than he could imagine the pain of losses. Morningstar research found that a 10% increase in the Global FOMO Index correlates with a 1.7-2.0% decline in monthly stock returns, proving that buying the top isn’t just bad for your wallet, it’s statistically predictable.
“What if I’m wrong and miss the opportunity of a lifetime?” felt more urgent than “What if I lose money?” This is regret aversion, and it drives people to act at precisely the worst times.
Famous Cases: Dave Is in Good Company
If you bought the top and feel stupid, take comfort in this: you’re in excellent company. Some of the smartest people in history have made the exact same mistake. I’ve done it myself, and I’m supposed to know better.
Sir Isaac Newton (1720)
The same man who discovered gravity and invented calculus lost a fortune in the South Sea Bubble. After getting out early with a profit, he watched others get richer and jumped back in near the peak.
He reportedly lost the equivalent of millions in today’s dollars. His famous quote after the bubble burst: “I can calculate the motion of heavenly bodies, but not the madness of people.”
If Isaac Newton can fall for a bubble, you can forgive yourself for falling for one too.
The Dot-Com Era (2000)
Pets.com raised $82 million in an IPO and was bankrupt within two years. Webvan burned through $800 million. Cisco hit $80 per share in March 2000 (it’s still never reached that level again).
Retail investors flooded into tech funds at the peak. The Nasdaq fell 78% over the next two years. The people who bought the top didn’t recover their investments for over a decade, if ever. Research from IO Fund shows this pattern repeats across every bubble, with retail investors consistently buying at the worst possible times.
The Housing Bubble (2006)
“Real estate never goes down” was the mantra. People were buying multiple properties with no money down, convinced that prices could only rise. The subprime mortgage crisis proved otherwise.
The people who bought at the 2006 peak watched their home values crater by 30-50% in some markets. Many were underwater on their mortgages for years.
Crypto Peaks (2017 and 2021)
Bitcoin hit $19,000 in December 2017. Retail investors piled in. It crashed to $3,000 within a year.
Then Bitcoin hit $69,000 in November 2021. Retail investors piled in again. It crashed to $15,000 within a year.
The people who bought at both peaks are still underwater. The pattern repeats because human psychology doesn’t change, and buying the top remains a timeless human behavior.
Meme Stock Mania (2021)
GameStop hit $483. AMC hit $72. Neither price had any connection to fundamental value. FOMO was the only fundamental that mattered.
The people who bought at those peaks have seen 90%+ declines. The diamond hands became the bag holders.
The point is this: buying the top is a timeless human behavior, not a modern anomaly. As long as markets have existed, people have bought at the worst possible times. The specific assets change. The psychology doesn’t. This is why I always say that understanding yourself is more important than understanding the market.
The Prevention: Building Systems to Stop Yourself
Here’s the uncomfortable truth: you cannot trust yourself in a state of FOMO. Your brain is literally working against you. The amygdala has a two-million-year head start on your rational mind.
The solution isn’t to fight your biology. It’s to build systems that prevent you from making decisions when your biology is in control.
Great investors don’t trust themselves, and neither should you. I certainly don’t trust myself when FOMO kicks in. They build fences before the lions arrive. Here’s how to do it.
System 1: The Investment Policy Statement
An investment policy statement is a letter from Rational You to Panicked You. You write it when you’re calm, and you follow it when you’re not.
Your IPS should include:
- Your target asset allocation (e.g., 60% stocks, 40% bonds)
- Your rebalancing rules (e.g., rebalance when allocations drift 5% from target)
- When you’ll sell (e.g., when you need the money for planned expenses)
- When you won’t sell (e.g., during market crashes)
Think of it as a pre-commitment device. You’re making decisions now that bind your future self. This is the foundation of a defensive investing strategy that can survive any market environment.
System 2: The Cooling-Off Period
Implement a 72-hour rule: no major investment decisions without three days of sleep between the idea and the execution.
This isn’t arbitrary. It takes time for your prefrontal cortex to catch up to your amygdala. When you feel the urge to buy something because it’s going up, wait 72 hours.
If you still want it after three days, proceed. But you’ll be amazed how often the urgency evaporates. Today’s “can’t miss opportunity” becomes tomorrow’s “what was I thinking?”
System 3: Dollar-Cost Averaging (The Anti-FOMO)
Dollar-cost averaging removes timing decisions entirely. You invest the same amount on the same schedule regardless of what markets are doing.
When prices are high, your fixed dollar amount buys fewer shares. When prices are low, it buys more. Over time, this smooths out your entry points and eliminates the possibility of buying the top with your entire portfolio. Research from Dimensional Fund Advisors shows that missing just the best weeks in the market can cost you thousands in returns.
This is why your 401k is actually brilliant, even if it feels boring. The automation removes your emotional brain from the equation entirely, preventing you from buying the top with your entire life savings in a moment of weakness.
System 4: The “What If I’m Wrong?” Test
Before making any investment, write down why it could be a terrible idea. Force yourself to articulate the bear case.
If you can’t come up with good reasons why you might lose money, you don’t understand the investment well enough to buy it. Every investment has risks. If you can’t see them, you’re blinded by greed.
System 5: Social Media Hygiene
Unfollow “finfluencers” who only post gains and never losses. Mute stock tickers during periods of euphoria. Remember that nobody posts their red portfolios.
Social media creates an illusion that everyone is winning all the time. They aren’t. You’re just seeing a curated highlight reel while living your own unedited reality.
The Survivor’s Guide: How to Recover If You Already Bought the Top
If you’re reading this because you already bought the top and you’re staring at massive losses, here’s your recovery plan.
First: don’t panic sell. Realizing losses cements the mistake. Paper losses are painful, but realized losses are permanent.
Second: consider tax-loss harvesting. If you’re down significantly, you can sell to harvest the loss for tax purposes, then buy a similar (but not identical) asset to maintain market exposure. This turns a mistake into a tax advantage. The SEC’s investor education resources provide additional guidance on recovering from investment mistakes.
Third: remember the stay put protocol. If you bought quality assets, holding through the pain is often the best strategy. Markets recover. Bubbles deflate and eventually reinflate elsewhere.
Fourth: consider dollar-cost averaging down. If you still believe in the thesis, buying more at lower prices reduces your average cost basis. Just be careful not to throw good money after bad.
Fifth: know when to fold. Some investments never recover. If you bought a meme stock at its peak based on Reddit hype, it might be time to take the loss and move on. Not everything comes back.
The lesson here is simple: pain plus reflection equals wisdom. Pain without reflection equals repeat. Use this experience to build the systems that prevent buying the top from happening again.
Don’t Become the Next Psychological Autopsy Case
Dave’s story isn’t unique. Dave’s story is universal. The biases that led him to buy the top are hardwired into all of us. They’re not character flaws. They’re survival mechanisms that happen to be terrible for investing.
The goal isn’t to eliminate emotion. That’s impossible. The goal is to build systems that work around your emotions. Architecture beats willpower every time.
Buying the top isn’t a sign of stupidity. It’s a sign of humanity. The question isn’t whether you’ll feel FOMO. You will. The question is whether you’ll have systems in place to prevent that FOMO from emptying your wallet.
Don’t become the next psychological autopsy case. Build your fences before the lions arrive. And if you want more tactical finance with a side of dark humor, subscribe to The Dividend Drip newsletter. I can’t promise you’ll never buy the top, but I can promise you’ll laugh about it afterward.
For more on building defensive portfolios that can survive market euphoria and crashes alike, check out my guide to dividend defense strategies. And if you’re wondering why smart people still lose money in markets, I’ve covered that too.
Stay tactical out there.
Frequently Asked Questions
What exactly does buying the top mean in investing?
Buying the top refers to purchasing an asset at or near its peak price, right before a significant decline. It’s the worst possible entry point because you’re paying the highest price and have the most to lose. Studies show retail investors are particularly prone to this behavior, often clustering at market tops.
Why do smart people keep buying the top despite knowing better?
Smart people buy the top because the decision isn’t driven by intelligence, it’s driven by emotion. FOMO, recency bias, and herd mentality are hardwired psychological responses that override rational thinking. Your amygdala (fear center) fires 42 times faster than your prefrontal cortex (logic center), making emotional decisions nearly impossible to resist without systems in place.
How can I tell if I’m about to buy the top of a market cycle?
Warning signs include: everyone around you is talking about getting rich, media headlines are universally bullish, you’ve stopped considering bear cases, and you feel urgent pressure to buy immediately. If you recognize these signs, implement a 72-hour cooling-off period before making any investment.
What percentage of retail investors experience losses from buying the top?
According to research, between 69-84% of retail investors experience losses, with buying the top being a major contributor. The Dalbar study found that the average retail investor underperforms the S&P 500 by 6.1% annually over 20-year periods, largely due to poor timing decisions like buying at peaks and selling at bottoms.
Can you recover financially after buying the top of a bubble?
Recovery is possible but depends on what you bought. Quality assets often recover over time, though it may take years. Consider tax-loss harvesting, dollar-cost averaging down, and holding through the pain. However, some speculative investments never recover their peak values, and knowing when to take a loss is also important.
What systems can prevent me from buying the top in the future?
Effective prevention systems include: writing an Investment Policy Statement when calm, implementing a 72-hour cooling-off period for major decisions, using dollar-cost averaging to remove timing decisions, conducting a ‘what if I’m wrong’ test before buying, and practicing social media hygiene by unfollowing hype accounts during euphoria.
Is buying the top always a mistake, or can it work out long-term?
While buying the top is statistically the worst entry point, long-term investors in quality assets often recover eventually. If you bought the S&P 500 at the 2000 peak, you were underwater for years but eventually made money. The key is distinguishing between quality assets in a temporary bubble and speculative assets that may never recover.