{"id":118084,"date":"2025-03-07T15:55:08","date_gmt":"2025-03-07T15:55:08","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/investing\/the-psychology-of-investing-8-the-cost-of-holding-on\/"},"modified":"2025-03-07T15:55:08","modified_gmt":"2025-03-07T15:55:08","slug":"the-psychology-of-investing-8-the-cost-of-holding-on","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=118084","title":{"rendered":"The Psychology of Investing #8: The Cost of Holding On"},"content":{"rendered":"<p> <br \/>\n<\/p>\n<div>\n<p>A quick announcement before I begin today\u2019s post \u2013\u00a0<\/p>\n<p><strong>My new book, <em>Boundless<\/em>, is now available for ordering!<\/strong><\/p>\n<p>After a wonderful response during the pre-order phase, I finally have the book in my hands and am shipping it out quickly. If you\u2019d like to get your copy, <strong><a href=\"https:\/\/www.safalniveshak.com\/boundless\/\" target=\"_blank\" rel=\"noreferrer noopener\">click here to order now<\/a>.<\/strong> You can also enjoy lower prices on multiple-copy orders.<\/p>\n<p>Plus, I\u2019m offering a special <strong>combo discount<\/strong> if you order <em>Boundless<\/em> along with my first book, <em>The Sketchbook of Wisdom.<\/em> <strong><a href=\"https:\/\/www.safalniveshak.com\/sketchbook-boundless-combo\/\" target=\"_blank\" rel=\"noreferrer noopener\">Click here to order your set<\/a>.<\/strong><\/p>\n<figure class=\"wp-block-image size-full\"><a href=\"https:\/\/www.safalniveshak.com\/boundless\/\" target=\"_blank\" rel=\"noreferrer noopener\"><img loading=\"lazy\" decoding=\"async\" width=\"960\" height=\"540\" src=\"https:\/\/safalniveshak.wpenginepowered.com\/wp-content\/uploads\/2025\/01\/Boundless-Form-Banner.jpg\" alt=\"\" class=\"wp-image-36593\" srcset=\"https:\/\/safalniveshak.wpenginepowered.com\/wp-content\/uploads\/2025\/01\/Boundless-Form-Banner.jpg 960w, https:\/\/safalniveshak.wpenginepowered.com\/wp-content\/uploads\/2025\/01\/Boundless-Form-Banner-300x169.jpg 300w, https:\/\/safalniveshak.wpenginepowered.com\/wp-content\/uploads\/2025\/01\/Boundless-Form-Banner-768x432.jpg 768w\" sizes=\"auto, (max-width: 960px) 100vw, 960px\"\/><\/a><\/figure>\n<hr class=\"wp-block-separator has-alpha-channel-opacity is-style-dots\"\/>\n<p><em>The Internet is brimming with resources that proclaim, \u201cnearly everything you believed about investing is incorrect.\u201d However, there are far fewer that aim to help you become a better investor by revealing that \u201cmuch of what you think you know about yourself is inaccurate.\u201d In this series of posts on the psychology of investing, I will take you through the journey of the biggest psychological flaws we suffer from that causes us to make dumb mistakes in investing. This series is part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund.<\/em><\/p>\n<hr class=\"wp-block-separator has-alpha-channel-opacity is-style-dots\"\/>\n<p>There\u2019s a peculiar thing about human nature\u2014we struggle to let go. We hold on to old clothes that no longer fit, relationships that have long since lost their warmth, and ideas that no longer serve us. We tell ourselves that we\u2019ve already invested too much\u2014maybe time, or money, or ourselves\u2014to simply walk away.\u00a0<\/p>\n<p>And like all of our quirkiness, even this reluctance to let go is deeply wired into us. Behavioural psychologists call it \u2018loss aversion\u2018, which is the tendency to fear losses far more than we appreciate gains. It explains why people stay in jobs they dislike, why gamblers keep doubling down, and why investors often refuse to accept the obvious.<\/p>\n<p><span id=\"more-36646\"\/><\/p>\n<p>I first learned this the hard way in 2008, during the first real financial crisis I experienced in life. I was not prepared mentally for how I should act and react with my investments as the investment world around me melted. Thankfully, I was largely out of the market by the start of 2008 as I had sold all my stocks to pay a part of my housing loan in late 2007. But I still held on to a couple of little investments, one of which was a small company headquartered in Bangalore that was of India\u2019s largest rose manufacturers and exporters.\u00a0<\/p>\n<p>Apart from the unique business it had, what excited me more was the management\u2019s bold ambition to become an agribusiness giant. The company had acquired vast tracts of farmland in Africa, planning to revolutionise food production and become a dominant player in global agriculture. It was the kind of underdog success story that makes investors dream big.<\/p>\n<p>I bought into the dream. And I wasn\u2019t alone. The stock had soared just before the 2008 bubble burst, fueled by aggressive expansion plans and the promise of an ever-growing global food market. The potential seemed limitless.<\/p>\n<p>And then, like so many dreams, it unraveled.<\/p>\n<p>The 2008 financial crisis was brutal, and this company\u2019s stock wasn\u2019t spared. At first, I dismissed the decline as an overreaction.\u00a0<strong>\u201c<\/strong>Markets are irrational in the short term,\u201d\u00a0I told myself.\u00a0\u201cThis will recover.\u201d<\/p>\n<p>But then came the news\u2014delays in its African operations, financial mismanagement, reports of unpaid wages, and logistical nightmares. The ambitious expansion had turned into an operational disaster. The government of the country it operated in Africa, once eager to facilitate foreign investment, had begun scrutinizing the company\u2019s activities more closely. There was news of land disputes, of unfulfilled commitments, and problems far deeper than a temporary market downturn.<\/p>\n<p>The company was in serious trouble.<\/p>\n<p>And yet, I couldn\u2019t bring myself to sell.<\/p>\n<p>The stock had surged just before the issues came out in the open, and then it crashed. At this point, my losses \u2013 in percentage terms- were substantial. The stock had fallen over 50%, and then 60%, then more. Every instinct told me to cut my losses and move on. But loss aversion had taken over.<\/p>\n<p>\u201cIt\u2019s only a loss if I sell.\u201d<\/p>\n<p>I clung to this idea like a lifeline. Selling would mean\u00a0admitting I was wrong. It would mean accepting that I had misjudged the company, that I had failed to see the warning signs. And that was too painful.<\/p>\n<p>So, I held on. I watched as the stock continued to fall, slipping further into irrelevance.\u00a0<\/p>\n<p>By the time I finally accepted reality and sold, the stock was worth next to nothing, down almost 90%.<\/p>\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1009\" height=\"492\" src=\"https:\/\/safalniveshak.wpenginepowered.com\/wp-content\/uploads\/2025\/03\/image-1.png\" alt=\"\" class=\"wp-image-36649\" srcset=\"https:\/\/safalniveshak.wpenginepowered.com\/wp-content\/uploads\/2025\/03\/image-1.png 1009w, https:\/\/safalniveshak.wpenginepowered.com\/wp-content\/uploads\/2025\/03\/image-1-300x146.png 300w, https:\/\/safalniveshak.wpenginepowered.com\/wp-content\/uploads\/2025\/03\/image-1-768x374.png 768w\" sizes=\"auto, (max-width: 1009px) 100vw, 1009px\"\/><\/figure>\n<\/div>\n<h2 class=\"wp-block-heading\">The Science Behind Loss Aversion<\/h2>\n<p>I no longer beat myself up for that mistake because I now understand that loss aversion isn\u2019t just a personal failing, but a deeply ingrained human bias.<\/p>\n<p>Behavioural scientists\u00a0Daniel Kahneman and Amos Tversky, in their ground-breaking work on\u00a0<a href=\"https:\/\/en.wikipedia.org\/wiki\/Prospect_theory\" target=\"_blank\" rel=\"noreferrer noopener\">Prospect Theory<\/a>, demonstrated that\u00a0losses feel roughly twice as painful as equivalent gains feel pleasurable. Their research revealed that humans are not purely rational decision-makers. Instead, we are wired to avoid losses more than we seek gains.<\/p>\n<p>This explains why many investors hold on to bad businesses for too long. The emotional weight of admitting a mistake is far heavier than the logical clarity required to cut a bad investment.\u00a0<\/p>\n<p>Kahneman and Tversky\u2019s studies showed that if given a choice between a guaranteed gain of $500 and a gamble with a 50% chance of winning $1,000 or nothing, most people take the sure $500. But when faced with an equivalent loss scenario\u2014either losing $500 outright or taking a 50% chance to lose $1,000 or nothing\u2014most choose to gamble, hoping to avoid the loss.<\/p>\n<p>This\u00a0asymmetry in how we perceive gains and losses\u00a0is what makes loss aversion so dangerous in investing. It leads to\u00a0irrational decision-making, where we avoid selling at a loss because it feels like an admission of failure, even when doing so is the best course of action.<\/p>\n<p>The following chart visually represents\u00a0how we process losses versus gains, showing that the pain of losing is disproportionately greater than the pleasure of winning:<\/p>\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1017\" height=\"812\" src=\"https:\/\/safalniveshak.wpenginepowered.com\/wp-content\/uploads\/2025\/03\/image-2.png\" alt=\"\" class=\"wp-image-36650\" srcset=\"https:\/\/safalniveshak.wpenginepowered.com\/wp-content\/uploads\/2025\/03\/image-2.png 1017w, https:\/\/safalniveshak.wpenginepowered.com\/wp-content\/uploads\/2025\/03\/image-2-300x240.png 300w, https:\/\/safalniveshak.wpenginepowered.com\/wp-content\/uploads\/2025\/03\/image-2-768x613.png 768w\" sizes=\"auto, (max-width: 1017px) 100vw, 1017px\"\/><\/figure>\n<\/div>\n<p>Looking back, I now understand that my reluctance to sell that stock wasn\u2019t about logic, but\u00a0emotion. I wasn\u2019t thinking like an investor, but like someone trying to avoid pain.<\/p>\n<hr class=\"wp-block-separator has-alpha-channel-opacity is-style-dots\"\/>\n<div class=\"wp-block-columns are-vertically-aligned-center is-layout-flex wp-container-core-columns-is-layout-1 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-vertically-aligned-center is-layout-flow wp-block-column-is-layout-flow\">\n<h2 class=\"wp-block-heading\" style=\"font-size:25px\">The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life.<\/h2>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>This is a masterpiece. <\/p>\n<p><strong>\u2013<\/strong> <strong>Morgan Housel, Author, The Psychology of Money<\/strong><\/p>\n<\/blockquote>\n<\/div>\n<div class=\"wp-block-column is-vertically-aligned-center is-layout-flow wp-block-column-is-layout-flow\">\n<div class=\"wp-block-image\">\n<figure class=\"alignright size-full is-resized\"><a href=\"https:\/\/book.safalniveshak.com\/\" target=\"_blank\" rel=\"noreferrer noopener\"><img loading=\"lazy\" decoding=\"async\" width=\"380\" height=\"569\" src=\"https:\/\/safalniveshak.wpenginepowered.com\/wp-content\/uploads\/2021\/08\/sketchbook-3.png\" alt=\"\" class=\"wp-image-33362\" style=\"width:294px;height:auto\" srcset=\"https:\/\/safalniveshak.wpenginepowered.com\/wp-content\/uploads\/2021\/08\/sketchbook-3.png 380w, https:\/\/safalniveshak.wpenginepowered.com\/wp-content\/uploads\/2021\/08\/sketchbook-3-200x300.png 200w\" sizes=\"auto, (max-width: 380px) 100vw, 380px\"\/><\/a><\/figure>\n<\/div>\n<\/div>\n<\/div>\n<hr class=\"wp-block-separator has-alpha-channel-opacity is-style-dots\"\/>\n<h2 class=\"wp-block-heading\">What It Really Cost Me<\/h2>\n<p>Ironically, the biggest cost wasn\u2019t just financial. Yes, I lost some money. But more than that, I lost time. I lost opportunity. The capital tied up in in this stock could have been put into stronger companies. Instead, it was trapped in an illusion of a recovery that would never come.<\/p>\n<p>That\u2019s the real damage of loss aversion\u2014it doesn\u2019t just hurt your income statement and your financial net worth. It paralyses you. It keeps you clinging to things long after they\u2019ve lost their value, hoping against hope that they will return to their former glory.<\/p>\n<p>And it\u2019s not just about stocks.<\/p>\n<p>We do this in life all the time.<\/p>\n<p>We hold on to failing businesses, pouring in more money just to \u201cmake back\u201d what we\u2019ve lost. <\/p>\n<p>We stay in relationships that no longer bring us joy because we\u2019ve already \u201cinvested too much time.\u201d <\/p>\n<p>We refuse to change paths even when the road ahead is clearly leading nowhere.<\/p>\n<p>But\u00a0sunk costs are sunk.\u00a0The past is gone, and no amount of wishing will bring it back.<\/p>\n<h2 class=\"wp-block-heading\">Why It\u2019s So Hard to Let Go<\/h2>\n<p>The reason loss aversion is so powerful is that it doesn\u2019t feel like a bias. It feels like\u00a0common sense.<\/p>\n<p>Nobody likes losing money. Nobody likes being wrong. And nobody likes the feeling of wasted effort.<\/p>\n<p>But the market doesn\u2019t care about your feelings. A stock doesn\u2019t \u201cremember\u201d the price you bought it at. It doesn\u2019t \u201cowe\u201d you a recovery.<\/p>\n<p>What I should have asked myself was simple:<\/p>\n<p><strong>If I didn\u2019t own this business\/stock today, would I buy it at this price?<\/strong><\/p>\n<p>The answer was an obvious no.<\/p>\n<p>But I didn\u2019t ask that question soon enough. And that mistake cost me.<\/p>\n<h2 class=\"wp-block-heading\">What I Took Away<\/h2>\n<p>There are three lessons I carry with me from this experience:<\/p>\n<ol start=\"1\" class=\"wp-block-list\">\n<li><strong>Cut your losses early<\/strong>: The best investors aren\u2019t the ones who never make mistakes. They\u2019re the ones who recognise mistakes\u00a0quickly\u00a0and move on. Every day you hold a bad investment (bad business), you\u2019re not just losing money\u2014you\u2019re losing time that could be spent on something better. \u201cCutting your losses\u201d here does not mean selling just because a stock has fallen in price. It means selling a stock because the underlying business has fallen in value that is not likely to rise again (effectively, a permanent destruction of value).<\/li>\n<li><strong>Separate ego from investing<\/strong>: Holding on to my stock for too long wasn\u2019t a rational decision. It was an emotional one. I was trying to protect my self-image, to avoid admitting I had been wrong. But the market doesn\u2019t reward ego. It rewards clear thinking.<\/li>\n<li><strong>The best investment is in better decisions<\/strong>: Losing money is painful. But what\u2019s more painful is\u00a0not learning from it. After my experience with that stock, I became more disciplined. I set clearer rules for when to sell. I stopped thinking of stocks as personal victories or failures. And I became far more willing to accept when an investment wasn\u2019t working.<\/li>\n<\/ol>\n<h2 class=\"wp-block-heading\">The Power of Moving On<\/h2>\n<p>Sometimes, the smartest thing you can do is let go. Not just in investing, but in life.<\/p>\n<p>A bad stock. A failed business. A toxic relationship. A past version of yourself.<\/p>\n<p>It\u2019s not easy. It never is.<\/p>\n<p>But as I look back, I realise that\u00a0clinging to something that isn\u2019t working (and not likely to) is far more costly than cutting it loose.<\/p>\n<p>My 2008 experience that I shared above was a painful lesson. But in the end, I\u2019m grateful for it. Because it taught me something every investor, and every person, needs to learn:<\/p>\n<p>Letting go isn\u2019t losing. It\u2019s making space for something better.<\/p>\n<hr class=\"wp-block-separator has-alpha-channel-opacity is-style-dots\"\/>\n<p><em>Disclaimer: This article is published as part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund.\u00a0All Mutual fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (\u2018RMF\u2019). For more info on KYC, RMF &amp; procedure to lodge\/ redress any complaints, visit\u00a0<\/em><a href=\"http:\/\/dspim.com\/IEID\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><em>dspim.com\/IEID<\/em><\/strong><\/a><em>.\u00a0Mutual Fund investments are subject to market risks, read all scheme related documents<\/em><\/p>\n<\/div>\n\n","protected":false},"excerpt":{"rendered":"<p>A quick announcement before I begin today\u2019s post \u2013\u00a0 My new book, Boundless, is now available for ordering! After a wonderful response during the pre-order phase, I finally have the book in my hands and am shipping it out quickly. If you\u2019d like to get your copy, click here to order now. You can also [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":118085,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[96],"tags":[11488,2449,10906,25893],"dealstore":[],"offerexpiration":[],"class_list":["post-118084","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-cost","tag-holding","tag-investing","tag-psychology"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.4 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The Psychology of Investing #8: The Cost of Holding On - Som2ny Network<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fivemor.com\/?p=118084\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Psychology of Investing #8: The Cost of Holding On - Som2ny Network\" \/>\n<meta property=\"og:description\" content=\"A quick announcement before I begin today\u2019s post \u2013\u00a0 My new book, Boundless, is now available for ordering! 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After a wonderful response during the pre-order phase, I finally have the book in my hands and am shipping it out quickly. If you\u2019d like to get your copy, click here to order now. 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