Enter your email address to follow ECNFIN.com and receive notifications of new articles by email for free. Be the first to read and do not miss future timely research publications.  

You should allow enough time for your investment strategy to succeed. Assuming your original investment thesis is sound, the longer you stay patient and avoid reacting impulsively to market news, the better your performance may be over time.

However, it’s important to distinguish between patience and pride. Sometimes, it’s necessary to recognize when a mistake has been made and to cut your losses. We are all subject to behavioral biases, which can be difficult to control.

One of the most common is loss aversion—the tendency to feel the pain of a loss more strongly than the pleasure of an equivalent gain. As Kahneman and Tversky (1984) noted, “a loss of $X is more aversive than a gain of $X is attractive.” This often leads investors to sell during downturns in an attempt to limit losses, even if it’s not the most rational choice.

Another bias, the representativeness heuristic, explains how investors often base their predictions on recent news or vivid descriptions rather than on their own beliefs or solid fundamental analysis. For example, watching financial media like CNBC or Bloomberg might lead investors to make decisions based on incomplete or sensationalized information.

Be patient with your investment decisions. Take your time, do your own research, and make choices based on careful analysis—not short-term noise.

Subscribe wherever you enjoy podcasts:

Our Mailing Address:

ECNFIN
1288 Kapiolani Blvd Apt 4003, Honolulu, HI 96814

Our Phone:

+1 720-593-1135

Our Fax:

+1 720-790-7606