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StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
The well-documented tendency to feel the pain of a loss more strongly than the pleasure of an equal gain, which can push investors to sell at the worst possible time.
Why It Matters
Research suggests a loss feels roughly twice as painful as an equal gain feels good. That imbalance is why a red portfolio can create an urgent need to do something, even when nothing about the long-term plan has changed. Naming the feeling makes it easier to separate a genuine change in the facts from a spike in discomfort.
Key Points
- The urge to stop the pain is strongest exactly when prices are lowest
- Selling to feel better can turn a temporary paper loss into a permanent one
- Loss aversion is normal and universal, not a personal failing
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The well-documented tendency to feel the pain of a loss more strongly than the pleasure of an equal gain, which can push investors to sell at the worst possible time. Research suggests a loss feels roughly twice as painful as an equal gain feels good. That imbalance is why a red portfolio can create an urgent need to do something, even when nothing about the long-term plan has changed.
Research suggests a loss feels roughly twice as painful as an equal gain feels good. That imbalance is why a red portfolio can create an urgent need to do something, even when nothing about the long-term plan has changed. Naming the feeling makes it easier to separate a genuine change in the facts from a spike in discomfort.
The urge to stop the pain is strongest exactly when prices are lowest
Selling to feel better can turn a temporary paper loss into a permanent one
Loss aversion is normal and universal, not a personal failing