One of the more difficult aspects of investing is knowing when to walk away from an investment. Selling, as they say, is the hardest part.
Not only because of the numerous biases investors face after an investment is made, but the impact of change — the kind that destroys companies — is difficult to recognize in the moment.
Selling is tough enough if investors are saddled with over-optimism, groupthink, confirmation bias, endowment effect, status quo bias, and the always difficult sunk-cost fallacy, to name a few. If you’re confident the company is fine, surround yourself with people that think the same, only look for affirming evidence to the fact and ignore the rest, overvalue the investment simply because you own it, and let all the time, money, and emotion you’ve “invested” in a single stock infect your decisions, then selling will be a grueling experience.
To complicate things further, the value of companies change all the time. Not always at the same rate as its stock price. It gets especially confusing when the company’s value and stock price move in opposite directions. To sum it up, selling is hard! Continue Reading…