By Bernz JP
One of the popular songs that is sung by Kenny Rogers is entitled the “Gambler.” It is a song about two men on a train talking about the secret to life. It has a catchy melody, is very popular and easy to sing.
The lyrics of the well-known chorus share this refrain. “You got to know when to hold ’em, know when to fold ’em know when to walk away, know when to run…”
This philosophy and “secret to life” is wise advice and can serve an individual as well in just about all situations and circumstances.
However, unlike the gambler, many stock market investors do not take this counsel. When they have purchased and invested in stock in the stock market, they do not consider the action of walking away from that stock that is a loser.
It can be argued that this refrain is certainly a mantra that should be exclaimed when an investor has money invested in the stock market. Therefore, it may prove beneficial to discuss 5 reasons why investors stay at the “gambling table” or why they keep hanging on to that loser, that losing stock that they have invested in.
1.The hope factor
The first major reason as to why investors hang on to losing stock is the misplaced emotional and heartfelt thinking of hope. Hope is an admirable quality and one that should not be abandoned as it sees and empowers individuals through difficult times.
Hope is not rooted or grounded in logic but wishes for the best to happen despite the outward circumstances that dictate otherwise. With hope, the odds could be against you at a million to one, but the eternal optimist or the person who holds out hope thinks that they may be that one exception out of the one million people.
Therefore, in hanging on to stock that was purchased, even though it may be losing, investors still somehow hope that the stock will turn from being a loser to the restored value and also an increase in the value of the stock’s worth. This hope provides an incentive to hang on to the stock based on this irrational and illogical thinking of the stock rebounding.
Consequently, if the investor finds themselves hanging on to this possibility in hopes of the stock rebounding, the owner is making their decisions based on their emotions rather than the facts. These decisions as to whether “cut one’s losses” are a decision based on subjectivity or emotions rather than the decision being an objective one. This is an extremely poor way of stock investing and subsequently hanging on to losing stock.
2. Investment misinformation
Another reason why stock investors hang onto stocks that are losing is that they believe in a false teaching regarding stock investing. That teaching is not that stocks are a good investment and provides one of the best returns for investments, but that individual stocks always rebound.