Not facing up to losses

The tendency to retain a losing position may cost an investor dearly.

If you make an investment and it drops in value your reaction is likely to be to resist selling until it at least returns to the purchase cost. Humans are poor at coping with errors and so our approach tends to be to ‘anchor’ ourselves at the price we originally paid. We persuade ourselves that we will eventually be proved right.

There is nothing shameful about making a mistake, professional investors do it all the time. It’s how you deal with it that counts. The pros try to look at all their holdings dispassionately with no regard at all to whether they are standing at a profit or loss (unless there is tax payable on disposal).

EQ tip: ask yourself: would I buy this investment today? If the answer is ‘No’ then you probably should not continue to hold.

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