{"id":10115,"date":"2024-05-26T19:30:57","date_gmt":"2024-05-26T19:30:57","guid":{"rendered":"https:\/\/economicherald.net\/?p=10115"},"modified":"2024-05-26T19:30:57","modified_gmt":"2024-05-26T19:30:57","slug":"hot-money-monday-hold-your-winners-and-cut-your-losers-but-is-that-really-the-best-strategy","status":"publish","type":"post","link":"https:\/\/economicherald.net\/?p=10115","title":{"rendered":"Hot Money Monday: Hold your winners, and cut your losers \u2013 but is that really the best strategy?"},"content":{"rendered":"

Disposition Effect is when you sell winners too soon and hold losers too long
\nShould investors actually let profits run?
\nAnd should we be cutting losses or sticking to a.Buy-and-Hold strategy?<\/p>\n

\u00a0<\/p>\n

We\u2019ve all fallen victim to a phenomenon called the \u201cdisposition effect\u201d<\/strong>, a widely-studied behavioural finance topic that affects every investor.<\/p>\n

This phenomenon refers to our tendency to sell winning stocks early to cash in on profits, while holding on to those that are losing money.<\/p>\n

Whether you\u2019re a newbie investor or a seasoned pro, logical or irrational, chances are you\u2019ve been guilty of doing just that.<\/p>\n

There\u2019s been a lot of academic research done on this topic, and they all indicate that succumbing to this phenomenon ultimately results in lower long-term returns.<\/p>\n

To look at the psychology of why disposition effect happens, let\u2019s say someone comes up to you and asks if you want to flip a coin:<\/p>\n

Tails = You lose $100<\/em>
\nHeads = You win $200<\/em><\/p>\n

Sounds like a good deal, right? But most people would pass on it, even though the odds are clearly in their favour.<\/p>\n

Why? Well, the thought of losing a hundred bucks is enough to scare most people off.<\/p>\n

People will go to great lengths to dodge losses, and our brains are wired to be more scared of losing than excited about winning, and that\u2019s why we don\u2019t like to cut our losses.<\/p>\n

Scientists put this down to our survival instinct, ie; if we are more averse to negative events than positive, then we are more likely to avoid danger and survive.<\/p>\n

\u201cBehavioural finance finds that people feel the pain of loss twice as strongly as they experience an equivalent gain as pleasurable,\u201d said a research paper from Blackrock.<\/p>\n

\u00a0<\/p>\n

Why let your profits run?<\/h2>\n

The \u201clet your profits run\u201d strategy is accredited to 18th-century economist, David Ricardo<\/em>.<\/p>\n

The question is: is that really good advice?<\/p>\n

Over the years, experts have delved into this question, and many have found that letting winning stocks run is in fact a good strategy.<\/p>\n

\u201cMomentum investing requires a great deal of patience, but when it does work, it works phenomenally well,\u201d said Gary Antonacci<\/em> in his book, Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk<\/em>.<\/p>\n

\u201cThe key is sticking to your strategy and not letting emotions interfere with your decisions,\u201d he wrote.<\/p>\n

Another expert known as the Father of Momentum Investing, Richard Driehaus<\/em>, has asserted that instead of looking for undervalued stocks, an investor should instead focus on buying high and selling even higher.<\/p>\n

The \u201cDriehaus Strategy\u201d, as it\u2019s known in the market, involves identifying and buying stocks in a strong upward price move. The key point of the Driehaus strategy is to stay with the stocks i.e. don\u2019t sell, in order to seek that \u201chome run\u201d.<\/p>\n

Another expert, famed hedge fund manager Paul Tudor Jones<\/em>, says that he believes in riding the momentum of a stock until it shows signs of reversal, saying that those stocks have a higher probability of continuing their upward trajectory in the near term.<\/p>\n

\u00a0<\/p>\n

Cut losses or buy-and-hold ?<\/h2>\n

Cutting losses, on the other hand, is one of the most important principles in stock trading, yet it is the most difficult to put into practice.<\/p>\n

Determining the appropriate time to exit a position isn\u2019t a straightforward matter. It depends on individual trading strategies and risk tolerance levels.<\/p>\n

Some opt to sell after experiencing a 2% loss, while others are willing to endure setbacks of 20% before making the decision to cut.<\/p>\n

One rule of thumb that\u2019s been widely preached in the market is to cut losses anytime a stock falls 7-8% below the price you purchased it at.<\/p>\n

\u201cThis basic principle helps you cap your potential downside. And it is the simplest way to make sure you never let a small loss become a big one,\u201d said market expert, Rushit Sejpal.<\/p>\n

That said, trying to sell blindly at pre-determined points might not be a winning strategy either.<\/p>\n

\u201cInstead of trying to time the market, consider spending time in the market,\u201d said a note from U.S. Wealth Management.<\/p>\n

\u201cYou may find that a passive investment strategy, such as buy-and-hold, can help you gain long-term returns.<\/p>\n

\u201cFor most investors, a buy-and-hold strategy can also result in quicker loss recuperation.\u201d<\/p>\n

\u00a0<\/p>\n

Top 20 best ASX small caps in 2024<\/h2>\n

On that note, here the top performing ASX small caps this year, measured by YTD returns:<\/p>\n

\n
<\/div>\n

Code Name Price YTD Return 6 Mth Return 1 Mth Return M4M Macro Metals $0.029 867% 480% 71% AGC Australian Gold and Copper $0.560 689% 789% 618% RCR Rincon Resources $0.110 293% 255% 144% FND Findi $3.720 261% 226% 46% VMS Venture Minerals $0.024 243% 109% 14% CHW Chilwa Minerals $0.530 203% 253% 34% SRZ Stellar Resources $0.021 200% 133% 11% MMC Mitre Mining $0.795 194% 246% 53% WIA WIA Gold $0.120 193% 264% 26% NYR Nyrada $0.063 186% 200% -36% SHG Singular Health $0.105 176% 176% 5% RNX Renegade Exploration $0.019 171% 111% 27% SKS SKS Tech $0.775 158% 260% 16% DRO DroneShield $0.895 142% 163% -4% GHY Gold Hydrogen $1.965 137% 105% 54% GTE Great Western $0.060 131% 58% 5% ARD Argent Minerals $0.020 122% 100% 5% CBY Canterbury Resources $0.055 120% 83% 90% SUM Summit Minerals $0.215 117% 87% 87% CND Condor Energy $0.039 117% 225% -20% <\/p>\n

<\/div>\n<\/div>\n

WordPress Table Plugin<\/a>
\n<\/span><\/p>\n

The post Hot Money Monday: Hold your winners, and cut your losers \u2013 but is that really the best strategy?<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"

Disposition Effect is when you sell winners too soon and hold losers too long Should investors actually let profits run? And should we be cutting [more…]<\/a><\/p>\n","protected":false},"author":0,"featured_media":10116,"comment_status":"","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-10115","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance"],"yoast_head":"\nHot Money Monday: Hold your winners, and cut your losers \u2013 but is that really the best strategy? - Economic Herald<\/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:\/\/economicherald.net\/?p=10115\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Hot Money Monday: Hold your winners, and cut your losers \u2013 but is that really the best strategy? - Economic Herald\" \/>\n<meta property=\"og:description\" content=\"Disposition Effect is when you sell winners too soon and hold losers too long Should investors actually let profits run? And should we be cutting [more...]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/economicherald.net\/?p=10115\" \/>\n<meta property=\"og:site_name\" content=\"Economic Herald\" \/>\n<meta property=\"article:published_time\" content=\"2024-05-26T19:30:57+00:00\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/economicherald.net\\\/?p=10115#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/economicherald.net\\\/?p=10115\"},\"author\":{\"name\":\"\",\"@id\":\"\"},\"headline\":\"Hot Money Monday: Hold your winners, and cut your losers \u2013 but is that really the best strategy?\",\"datePublished\":\"2024-05-26T19:30:57+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/economicherald.net\\\/?p=10115\"},\"wordCount\":854,\"publisher\":{\"@id\":\"https:\\\/\\\/economicherald.net\\\/#organization\"},\"image\":{\"@id\":\"https:\\\/\\\/economicherald.net\\\/?p=10115#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/economicherald.net\\\/wp-content\\\/uploads\\\/2024\\\/05\\\/Disposition-Effect-is-when-you-sell-winners-too-soon-and-hold-losers-too-long.-Picture-Getty-3VGF2p.jpeg\",\"articleSection\":[\"Finance\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/economicherald.net\\\/?p=10115\",\"url\":\"https:\\\/\\\/economicherald.net\\\/?p=10115\",\"name\":\"Hot Money Monday: Hold your winners, and cut your losers \u2013 but is that really the best strategy? - Economic Herald\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/economicherald.net\\\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\\\/\\\/economicherald.net\\\/?p=10115#primaryimage\"},\"image\":{\"@id\":\"https:\\\/\\\/economicherald.net\\\/?p=10115#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/economicherald.net\\\/wp-content\\\/uploads\\\/2024\\\/05\\\/Disposition-Effect-is-when-you-sell-winners-too-soon-and-hold-losers-too-long.-Picture-Getty-3VGF2p.jpeg\",\"datePublished\":\"2024-05-26T19:30:57+00:00\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/economicherald.net\\\/?p=10115#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/economicherald.net\\\/?p=10115\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/economicherald.net\\\/?p=10115#primaryimage\",\"url\":\"https:\\\/\\\/economicherald.net\\\/wp-content\\\/uploads\\\/2024\\\/05\\\/Disposition-Effect-is-when-you-sell-winners-too-soon-and-hold-losers-too-long.-Picture-Getty-3VGF2p.jpeg\",\"contentUrl\":\"https:\\\/\\\/economicherald.net\\\/wp-content\\\/uploads\\\/2024\\\/05\\\/Disposition-Effect-is-when-you-sell-winners-too-soon-and-hold-losers-too-long.-Picture-Getty-3VGF2p.jpeg\",\"width\":1200,\"height\":675},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/economicherald.net\\\/?p=10115#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\\\/\\\/economicherald.net\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Hot Money Monday: Hold your winners, and cut your losers \u2013 but is that really the best strategy?\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\\\/\\\/economicherald.net\\\/#website\",\"url\":\"https:\\\/\\\/economicherald.net\\\/\",\"name\":\"Economic Herald\",\"description\":\"\",\"publisher\":{\"@id\":\"https:\\\/\\\/economicherald.net\\\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\\\/\\\/economicherald.net\\\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\\\/\\\/economicherald.net\\\/#organization\",\"name\":\"Economic Herald\",\"url\":\"https:\\\/\\\/economicherald.net\\\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/economicherald.net\\\/#\\\/schema\\\/logo\\\/image\\\/\",\"url\":\"https:\\\/\\\/economicherald.net\\\/wp-content\\\/uploads\\\/2023\\\/10\\\/cropped-cropped-economicheraldlogo-1.png\",\"contentUrl\":\"https:\\\/\\\/economicherald.net\\\/wp-content\\\/uploads\\\/2023\\\/10\\\/cropped-cropped-economicheraldlogo-1.png\",\"width\":850,\"height\":760,\"caption\":\"Economic Herald\"},\"image\":{\"@id\":\"https:\\\/\\\/economicherald.net\\\/#\\\/schema\\\/logo\\\/image\\\/\"}}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Hot Money Monday: Hold your winners, and cut your losers \u2013 but is that really the best strategy? - Economic Herald","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/economicherald.net\/?p=10115","og_locale":"en_US","og_type":"article","og_title":"Hot Money Monday: Hold your winners, and cut your losers \u2013 but is that really the best strategy? - Economic Herald","og_description":"Disposition Effect is when you sell winners too soon and hold losers too long Should investors actually let profits run? And should we be cutting [more...]","og_url":"https:\/\/economicherald.net\/?p=10115","og_site_name":"Economic Herald","article_published_time":"2024-05-26T19:30:57+00:00","twitter_card":"summary_large_image","twitter_misc":{"Est. reading time":"4 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/economicherald.net\/?p=10115#article","isPartOf":{"@id":"https:\/\/economicherald.net\/?p=10115"},"author":{"name":"","@id":""},"headline":"Hot Money Monday: Hold your winners, and cut your losers \u2013 but is that really the best strategy?","datePublished":"2024-05-26T19:30:57+00:00","mainEntityOfPage":{"@id":"https:\/\/economicherald.net\/?p=10115"},"wordCount":854,"publisher":{"@id":"https:\/\/economicherald.net\/#organization"},"image":{"@id":"https:\/\/economicherald.net\/?p=10115#primaryimage"},"thumbnailUrl":"https:\/\/economicherald.net\/wp-content\/uploads\/2024\/05\/Disposition-Effect-is-when-you-sell-winners-too-soon-and-hold-losers-too-long.-Picture-Getty-3VGF2p.jpeg","articleSection":["Finance"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/economicherald.net\/?p=10115","url":"https:\/\/economicherald.net\/?p=10115","name":"Hot Money Monday: Hold your winners, and cut your losers \u2013 but is that really the best strategy? - Economic Herald","isPartOf":{"@id":"https:\/\/economicherald.net\/#website"},"primaryImageOfPage":{"@id":"https:\/\/economicherald.net\/?p=10115#primaryimage"},"image":{"@id":"https:\/\/economicherald.net\/?p=10115#primaryimage"},"thumbnailUrl":"https:\/\/economicherald.net\/wp-content\/uploads\/2024\/05\/Disposition-Effect-is-when-you-sell-winners-too-soon-and-hold-losers-too-long.-Picture-Getty-3VGF2p.jpeg","datePublished":"2024-05-26T19:30:57+00:00","breadcrumb":{"@id":"https:\/\/economicherald.net\/?p=10115#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/economicherald.net\/?p=10115"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/economicherald.net\/?p=10115#primaryimage","url":"https:\/\/economicherald.net\/wp-content\/uploads\/2024\/05\/Disposition-Effect-is-when-you-sell-winners-too-soon-and-hold-losers-too-long.-Picture-Getty-3VGF2p.jpeg","contentUrl":"https:\/\/economicherald.net\/wp-content\/uploads\/2024\/05\/Disposition-Effect-is-when-you-sell-winners-too-soon-and-hold-losers-too-long.-Picture-Getty-3VGF2p.jpeg","width":1200,"height":675},{"@type":"BreadcrumbList","@id":"https:\/\/economicherald.net\/?p=10115#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/economicherald.net\/"},{"@type":"ListItem","position":2,"name":"Hot Money Monday: Hold your winners, and cut your losers \u2013 but is that really the best strategy?"}]},{"@type":"WebSite","@id":"https:\/\/economicherald.net\/#website","url":"https:\/\/economicherald.net\/","name":"Economic Herald","description":"","publisher":{"@id":"https:\/\/economicherald.net\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/economicherald.net\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/economicherald.net\/#organization","name":"Economic Herald","url":"https:\/\/economicherald.net\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/economicherald.net\/#\/schema\/logo\/image\/","url":"https:\/\/economicherald.net\/wp-content\/uploads\/2023\/10\/cropped-cropped-economicheraldlogo-1.png","contentUrl":"https:\/\/economicherald.net\/wp-content\/uploads\/2023\/10\/cropped-cropped-economicheraldlogo-1.png","width":850,"height":760,"caption":"Economic Herald"},"image":{"@id":"https:\/\/economicherald.net\/#\/schema\/logo\/image\/"}}]}},"_links":{"self":[{"href":"https:\/\/economicherald.net\/index.php?rest_route=\/wp\/v2\/posts\/10115","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/economicherald.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/economicherald.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/economicherald.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10115"}],"version-history":[{"count":0,"href":"https:\/\/economicherald.net\/index.php?rest_route=\/wp\/v2\/posts\/10115\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/economicherald.net\/index.php?rest_route=\/wp\/v2\/media\/10116"}],"wp:attachment":[{"href":"https:\/\/economicherald.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10115"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/economicherald.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10115"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/economicherald.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10115"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}