After a rough day for the markets like Thursday, many investors might wonder when it’s time to let go of their exchange traded funds (ETFs).
Breaking up is hard to do, as the old song so wisely proclaimed, and it’s no less true when it comes to investing. In fact, it might even be harder. Jason Zweig for the Wall Street Journal says that using a death grip isn’t necessary.
But why do so many people do it? Both individual investors and professionals struggle with it. One Berkeley finance professor found that investors are at least 50% more likely to sell their winners than their losers. Fewer than 30% of those base their sell decisions on “extensive research,” instead selling by the seat of their pants.
Zweig points out that we’re prisoners of the past. It can be so hard to let go of something that once delivered returns in the double digits, or even something that you had such high hopes for but never really panned out. Buying is a cinch – it’s selling where it gets to be a challenge.
Just look at commodities and emerging markets – both areas are coming off fantastic runs this year, but in recent months, there have been sharp corrections. Some of the best-performing funds are now 30% or more off their highs, yet they still hold billions in assets. It makes us wonder what’s going on?