"Everyone in the world is a long-term investor until the market goes down."
- Peter Lynch, the Fidelity investment guru
We found this out again during the current bear market. This is another variation on the old, "sell your winners and hang onto your losers" mentality that gets investors into trouble.
This Peter Lynch phrase is a nice way to describe prospect theory - the fact that perceived gains have less of an emotional impact than perceived loses. Of course, there is more to prospect theory, but the differential impact of gains versus loses on investor psychology makes investors do things that are not expected based on traditional expected utility analysis.
A key role of quantitative investing is offsetting the natural tendency to be biased with our perception of gains and losses. Quant rules can hardwire good behavior.