holding on to a stock for too long hoping for impractical returns could be counterproductive
picture this. you bought additional shares in a pharma company in anticipation of a breakthrough drug launch despite your financial advisor warning against it. the drug launch fails to create waves and the stock tanks continuously. but you are unable to part with the stock in hopes of a brighter future. so you continue to hold on to it. and because of this, eventually, you end up with a bag of worthless shares.
‘bag holders’ are individuals who hold a stock till its price touches zero simply because they don’t want to sell it. the stock may have been purchased looking at an upside potential that no longer exists. but the investor continues to hold on, in hopes of a miracle bull run.
however, stocks move based on their fundamentals. if there is no value left in the company, the share price will continue to slide. those waiting to recoup their investment will only end up with negative returns.
even if a particular stock showed signs of growth in the past, investors need to monitor the company’s performance including financial results and growth projections.
a good way to measure the future outlook would be to listen to the management calls after the quarterly results to look for mismatches between projections and actual numbers.
while inactive stock market investors may choose to let stocks remain in their portfolios forever, it is crucial that you sell off stocks before their value slips to zero. reviewing the stocks annually would be a good strategy to avoid losses.
for new investors, it would be best to avoid taking stock tips from social media where the algorithm already filters content based on your preferences. this would also lead to confirmation bias where any adverse information about the said stock would be filtered out.
if you have lost a significant amount of money in such stocks, it would be advisable to cash out rather than lose the entire investment.