Regret aversion can prevent investors from making necessary changes to their portfolios from "summary" of The Little Book of Behavioral Investing by James Montier
Regret aversion is a powerful force that can hold investors back from making vital changes to their portfolios. This phenomenon occurs when investors fear the regret they will feel if they make a decision that turns out to be wrong. This fear of regret can cause investors to stick with their current investments, even when those investments are no longer serving their best interests. Investors may hold onto losing investments because they are afraid of admitting they made a poor choice in the past. They may also avoid selling winning investments because they fear missing out on future gains. In both cases, regret aversion leads investors to maintain the status quo, even when it is not in their best financial interest to do so. Regret aversion can be particularly problematic when it prevents investors from rebalancing their portfolios. Rebalancing is a crucial aspect of portfolio management, as it helps investors maintain their desire...Similar Posts
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