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By Presiyana Karastoyanova 25-09-2019
In: deep-dives | Economics Investment Strategy

How Investors Lose Money When They Sell

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Investors Behave the Same When They Buy and Sell, Don’t They?

There is ostensibly no reason why an investor’s skill would differ between buying and selling a stock. Both activities involve, at least theoretically, a similar process. But a recently published paper, ‘Selling Fast and Buying Slow: Heuristics and Trading Performance of Institutional Investors’, suggests that behavioural biases in decision-making can plague even the most sophisticated of investors.

In the 1980’s the American economist Richard Thaler observed that people often demand much more to give up an object than they would be willing to pay to acquire it in the first place. He named this ‘the endowment effect’. Thinking similarly a few years later, academics Daniel Kahneman and Amos Tversky coined the term ‘loss aversion’ to describe when the disatification of giving up an object is greater that the satifisfcation of acquisition. So how do these phenomena play out for investors?

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