The disposition effect famously describes the tendency of investors to sell winners too early and hold on to losers for too long. This is obviously bad for performance because investments exhibit momentum and winners tend to keep going up after the investor sold them while losers tend to keep going down. From a pure performance perspective, investors should do the opposite and if you live in a country where there are capital gains taxes, you definitely should do the opposite since tax loss harvesting can improve your after-tax returns substantially.
The disposition effect messes with you
The disposition effect messes with you
The disposition effect messes with you
The disposition effect famously describes the tendency of investors to sell winners too early and hold on to losers for too long. This is obviously bad for performance because investments exhibit momentum and winners tend to keep going up after the investor sold them while losers tend to keep going down. From a pure performance perspective, investors should do the opposite and if you live in a country where there are capital gains taxes, you definitely should do the opposite since tax loss harvesting can improve your after-tax returns substantially.