In this episode of Financial Decoder, host Mark Riepe, head of the Schwab Center for Financial Research, examines the psychological forces that impact a common investing decision: What should you sell?
Investors often spend a lot of time and energy trying to decide which investments are the best to buy. But what about when it is time to sell? In this episode of Financial Decoder, Mark shares what the research tells us about the psychology of the sell decision. Choosing to keep or to sell a stock or other investment can be complicated because of something called the disposition effect. Joining Mark in the discussion is Omar Aguilar, chief investment officer for equities at Charles Schwab Investment Management ( , who talks about the way professional money managers work to mitigate behavioral and cognitive biases.
• One study, looking at real brokerage accounts of individual
investors, found that stocks with an unrealized gain are 50% more
likely to be sold than stocks with an unrealized loss. For more
information on this study see “Are Investors Reluctant to Realize
Their Losses?” from The Journal of Finance.
• Another study found that when stocks are inherited, the disposition effect is half as large as
it is when stocks are purchased by the investor. You can read more
about this study from the Journal of Behavioral Decision Making.
• Mark also discusses the use of stop loss orders to reduce the disposition
effect. This was studied in detail by researchers in the European
Journal of Finance.
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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
Investing involves risk, including loss of principal.
Charles Schwab Investment Management, Inc. is an affiliate of Charles Schwab & Co., Inc.
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