In love, when you are in a relationship with someone for too long, when you have lost feelings, it is very uncomfortable or feels constrained and pressured to want to break up but the result is still to stay... And in investing, it is the same, even if there are losses, you still do not cut and continue to inject capital into the investment. Have you ever thought about why that is? In this article, I will answer some of your questions about it.
The "over-attachment" psychological effect - Endowment Effect - This is the phenomenon where investors overvalue their assets more than their actual market value, simply because they own them. This leads to them not wanting to sell or take profits in a timely manner, even when the asset has reached a reasonable value or is depreciating, making them more likely to incur losses or miss out on better investment opportunities.
Some manifestations of attachment to investment assets:
Not wanting to sell when necessary: Investors often find it hard to cut losses when assets depreciate because they hope that it will recover. They hold onto assets for too long even though the assets may no longer have long-term investment value.
Overvaluing assets simply because they are owned: When too attached to an asset, investors tend to believe that this asset is worth more than its actual value, leading to decisions to hold on even when there are reasonable profit-taking opportunities.
Unrealistic expectations for an asset even though it no longer has the potential to grow, even leading to losses.
===>Low investment performance, high risk of loss, unbalanced investment portfolios
How to get rid of this mindset?
-> identify clear goals, set targets, determine when to take profits or cut losses to achieve the targets set.
-> Diversify investment categories, if lacking knowledge, proactively learn and refer to articles to gather knowledge for yourself.
-> Regularly restructure, this helps investors reassess their investments and adjust their portfolios to achieve higher performance/returns, avoiding clinging to assets that are no longer suitable at the moment.
