Investors sell their winning stocks too early and cling to their losing ones too long
Rational investing says a stock's past purchase price shouldn't affect whether you sell it now — only its future prospects should. Shefrin and Statman found investors do the opposite: they lock in gains quickly to feel like winners, while holding onto losing positions far past the point of good sense, hoping to avoid ever having to admit the loss. The pattern shows up in brokerage records worldwide and quietly costs the average investor real, measurable returns.