The theme this week on the Retirement Quick Tips Podcast is the Deadly Sins of Investors In Bear Markets.

Today, I’m talking about the deadly sin of holding on to your losers. Many investors cannot bear to sell anything at a loss, so they ride it out in the hopes that the sour investment will turnaround. 

When I was 22 years old, I was convinced that the Chinese were going to take over the world, and that their economy and stock market would thrive over the coming years. While I was still in college, I started following a Chinese index fund that tracked the performance of the largest Chinese companies. Between 2004 & 2007, this index fund tripled in value. When I graduated college in 2007, I had some savings built up, so I decided to put a few thousand dollars into the index fund. Back then, att 22 this investment of a few thousand dollars was about ⅓ of my entire net worth. Within a few months of buying the index fund, the financial crisis hit and I lost ⅔ of what I had invested. 

It took me 3 more years after that while the Chinese market continued to limp along to finally sell my investment and move on. 

3 years of holding onto a loser. I’m glad I sold, because I went back and looked, and that index fund still hasn’t returned to the price I bought it at 15 years ago. But some people never sell, because the story they tell themselves is that the investment will recover. But in doing so, they ignore the fundamentals and they ignore all the reasons why that investment may never recover. 

The lesson here is to detach yourself emotionally from all of your investments, and cut your losses early. 

When deciding whether or not to hold or sell, all that matters is the future growth potential of that investment. Selling is hard because we ignore sunk costs that are a just a part of investing.The sunk cost fallacy means that we are making decisions that are irrational and lead to suboptimal outcomes. We are focused on our past investments instead of our present and future costs and benefits, meaning that we commit ourselves to decisions that are no longer in our best interests.

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance