Most investors are aware of the disposition effect, which is the tendency to sell winners too early and hold on to losers in the hope that they will come back. The problem with this behaviour is that it leads to sub-optimal results, as it means selling assets when they are doing well and hanging on to them when they are not.
There are a few simple steps that investors can take to avoid the disposition effect and improve their performance.
- First, it is important to have a written investment plan that includes clear buy and sell rules. This will help to take emotion out of the equation and prevent impulsive decisions.
- Second, it is crucial to monitor your investments on a regular basis and stick to your plan. This will help you to stay disciplined and avoid the temptation to sell winners too early or hold on to losers for too long.
- Finally, it is helpful to seek professional advice from a qualified investment advisor. They can provide guidance and support to help you stay on track and make sound investment decisions.
By following these simple steps, you can avoid the disposition effect and improve your investment results. Stay disciplined, monitor your investments, and seek professional advice to achieve success in the markets. common problem among investors, but it can be avoided with a little discipline.