Process and psychology
Selling winners early and holding losers
Investors tend to realize gains too readily and hold losses too long.
Well documented
Found repeatedly in peer-reviewed work or regulator data.
Repeated across data sets, mostly equities.
What it is
In records of about 10,000 accounts, winners were sold at a higher rate than losers, and it was not explained by rebalancing. Access to a social trading network nearly doubled the effect in one study.
What it suggests
It is one reason a rule about stops and targets, made in advance, helps.
How to check it
Compare the average holding time and size of winners and losers in the journal.
Common mistakes
- Closing winners at the first pullback and holding losers for a bounce.
Sources
- Odean (1998), Are investors reluctant to realize their losses? Journal of Finance 53(5) (citation and headline finding only)
- Heimer (2016), Peer pressure: social interaction and the disposition effect, Review of Financial Studies 29(11) (citation and headline finding only)
Related lessons
Written in our own words. Education only, not financial advice.