We sell our winners and cling to our losers

In 1998, the economist Terrance Odean put 10,000 US brokerage accounts under the microscope: years of trades by ordinary investors. The pattern was unmistakable: they sold rising stocks far more readily than falling ones. The losers they kept for years, waiting for a comeback.

It was expensive twice over. The winners they let go kept climbing: the next year they returned, on average, about 3.4 points more than the losers they held. Tax-wise it's the world upside down: selling losses usually trims your tax bill; selling gains brings it forward. Only in December, with the taxman in sight, did they dump losers.

Shefrin and Statman had already named it in 1985: the disposition effect. The root isn't mathematical — it's emotional: as long as you don't sell, the loss 'doesn't count'. Selling a loser means admitting, to yourself, that you got it wrong.

Your portfolio doesn't store your pride; only your decisions. The useful question isn't whether that stock will come back, but why you need it to.