“I just love to take profits. I hear music when the cash register rings,” the trader Marty Zweig told Jack Schwager in Market Wizards. Who doesn’t? Investors are often advised to let their profits run, but banking gains feels good. It may also make us feel clever – even if we’re anything but. A forthcoming Journal of Finance paper, Disposed to Be Overconfident, suggests profit-taking can distort our memories and judgment. When judging their stock-picking abilities, ordinary investors rarely bother with overall portfolio returns or comparisons with the market. Instead, the study says, they use a simpler scorecard: how many stocks they sold at a profit versus how many sold at a loss. By selling winners quickly, holding on to losers, and remembering the former more fondly, investors convince themselves they are better stock-pickers than their overall returns suggest. The researchers found evidence of how skewed this scorecard can be.…
The Irish Times · Irlandahace 1 hora