It happens to everyone...you buy a cryptocurrency, an ETF, or something else, guided by excellent analysis (or enthusiasm), but after a few months the position is down 20% or 30%.
The human instinct is not to clearly evaluate what to do, but to remain paralyzed. We tell ourselves, "I won't sell until I break even."
This attitude in psychology and economics is called the Sunk Cost Fallacy.
Cost Fallacy are money or time you've already spent and can't get back, explained briefly. The human brain tends to reject real losses. So, until you close the position, you tell yourself the loss is only virtual, so you continue to hold on to an inefficient asset only because you regret having invested the initial capital in it.
Why do we get stuck here?
Various reasons include loss aversion (the mental pain of recording a real loss quantified as twice the pleasure of an equal gain), confirmation bias (we search everywhere for news that confirms our thesis), and often, we simply refuse to admit we've made the wrong investment because it hurts our ego.
What to do?
First, ask yourself: Would I buy this asset again if I had that amount in my hands today?
If so, hold the position or accumulate if the fundamentals are solid; otherwise, you're only holding the asset for emotional reasons.
Some Rules
The best way to avoid emotionally driven decisions is to establish firm rules, such as setting a STOP LOSS (maximum tolerable loss limit) and planning periodic portfolio rebalancing without being guided by market noise.
In short, cutting deadwood doesn't mean you've failed, but rather learned a lesson in risk management. Freeing up capital from inefficient positions allows you to reallocate resources where the probability of future growth is real, not dictated by hope.
Oh...and remember to always invest only an amount you're willing to lose!
Thanx for reading, don't forget to like, follow and comment :)
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