Loss Psychology
Categories: Financial Theory
Ok, own it. You invested at $40 and your stock is now worth $30 after the company's announcement that the CEO believes she really is the Queen in Snow White. Talks to the beauty pageant guy through a magic mirror and everything. More importantly, the company's contracts with distributors of its bathroom mirrors treat this like a bunch of them have been dropped. And cracked. Seven years of bad luck upon seven years of bad luck.
If you were coldly neutral about events, you'd realize that the company's business is permanently damaged. Even with a new CEO, things won't get better. The brand is forever tarnished. You really should sell it here at $30. All the data and patterning tells you that it's going to $20. But loss psychology is preventing you. You've lost a quarter of your investment...but you swear your old price target of $80 is still doable. But maybe not for a while.
Reality: you should sell. But you don't. The loss psychology has your "sell" clicking finger...constipated.