Investors are statistically more likely to sell winning stocks while holding onto losing ones
Individual investors are statistically more likely to sell their winning stocks while holding onto their losing ones, a behavior that consistently reduces their long-term wealth.
The 'disposition effect' is a pervasive trading bias where investors have a disproportionate tendency to realize gains and avoid realizing losses. An analysis of 10,000 brokerage accounts by Terrance Odean in 1998 revealed that investors sell winning stocks 1.5 times more frequently than losing ones. This behavior is mathematically counterproductive, as the winners often continue to rise while the losers continue to decline.
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