There are so many areas in life where we know we can reduce losses and avoid harm by taking preventive action, yet we wait and wait until it is too late.
interesting analogies and good heads-up to the referred study. That said, for retail investors, the danger of overtrading might be bigger than that of ignoring losses?
Difficult to say. With transaction costs coming down significantly, I think the risk of overtrading is declining, but the risk of sitting on losses forever remains the same.
perhaps we need to differentiate between individual stocks and indices. As Buffett et al have said, index fund investing benefits from a calm hand, because the bank is on your side. With all likelihood, things will turn out positive in the long run, if you wait long enough (and you're not investing in Japan 1990-2022).
Individual corporations however can and will go to zero.
As a retail investor myself, I have gone through this phenomenon myself...it is not the transaction cost but loss related to leveraging and large position...I have lost a lot because I did not (psychologically and financially) have the staying power in a large position when it turns against me.
interesting analogies and good heads-up to the referred study. That said, for retail investors, the danger of overtrading might be bigger than that of ignoring losses?
Difficult to say. With transaction costs coming down significantly, I think the risk of overtrading is declining, but the risk of sitting on losses forever remains the same.
perhaps we need to differentiate between individual stocks and indices. As Buffett et al have said, index fund investing benefits from a calm hand, because the bank is on your side. With all likelihood, things will turn out positive in the long run, if you wait long enough (and you're not investing in Japan 1990-2022).
Individual corporations however can and will go to zero.
As a retail investor myself, I have gone through this phenomenon myself...it is not the transaction cost but loss related to leveraging and large position...I have lost a lot because I did not (psychologically and financially) have the staying power in a large position when it turns against me.
Psychology, money and humans...The Dutch are notoriously over-insured and they also save like mad.
And most of them have funeral insurance although they can easily pay for it from their savings...
The day economists realise they're psychologists will mark a significant improvement of the field.
Couldn't agree more. This is so true not only in investment but in other aspects of life ..our health, relationship etc.