Loss aversion makes investors hold on to losing investments for too long from "summary" of The Little Book of Behavioral Investing by James Montier
Loss aversion is a powerful force that can lead investors down a dangerous path. When faced with the prospect of selling a losing investment, many investors experience a strong emotional pull to hold on in the hopes that the investment will eventually turn around. This tendency to avoid realizing a loss is a common cognitive bias that can have detrimental effects on investment performance. The fear of regret plays a significant role in this phenomenon. Investors are often haunted by the thought that if they sell a losing investment, it will quickly rebound, causing them to miss out on potential gains. This fear of making the wrong decision can paralyze investors and prevent them from taking appropriate action to mitigate losses. Additionally, investors tend to place more weight on losses than ga...
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