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Investor Psychology, Part III: Seeking And Avoiding Risk At Exactly The Wrong Time
FYI: Too often, investors sell their winners early and hold on to their losers in order to avoid taking a loss. Put another way, when faced with a gain, investors avoid risk; when faced with a loss, they seek risk. It's the exact opposite of what a rational, profit-maximizing investor would be expected to do. This is another paradox of human behavior that helps explain why most investors perform badly. Regards, Ted http://fat-pitch.blogspot.com/2017/10/investor-psychology-part-iii-seeking.html
"Loss Aversion Says That The Pain Of Loss Is Stronger Than The Joy Of Gain." This is a key finding from Prospect Theory.
How much stronger is the pain of loss stronger than the joy of winning? The research suggests that losing is about two, perhaps two and one-half, times, more painful than winning. We hate to lose.
If you find the subject interesting, the web has many informative sites that offer great introductory material. Here is just one such reference:
Enjoy. These behavioral findings are a likely explanation why most individual investors fail to recover equity market returns by a large, depressing margin.
Comments
"Loss Aversion Says That The Pain Of Loss Is Stronger Than The Joy Of Gain." This is a key finding from Prospect Theory.
How much stronger is the pain of loss stronger than the joy of winning? The research suggests that losing is about two, perhaps two and one-half, times, more painful than winning. We hate to lose.
If you find the subject interesting, the web has many informative sites that offer great introductory material. Here is just one such reference:
http://fas-polisci.rutgers.edu/levy/articles/1992 Prospect Theory - Intro.pdf
If you are not interested to this intensity level in the Rutgers 17 page introduction, here is a Link to a practical,summary of the issues:
https://curiosity.com/topics/loss-aversion-says-that-the-pain-of-loss-is-stronger-than-the-joy-of-gain-curiosity/
Enjoy. These behavioral findings are a likely explanation why most individual investors fail to recover equity market returns by a large, depressing margin.
Best Wishes