Disposition effect
The disposition effect describes investors' tendency to sell that have gained value too early while continuing to hold that have lost value for too long. It runs directly counter to the classic investing advice to let winners run and cut losers short, and it shows up consistently across both individual and professional investors.
The behavior is driven by how differently gains and losses feel psychologically. Selling a winner locks in a gain and the good feeling that comes with being right, while selling a loser means admitting the original decision was wrong and locking in a loss that could still reverse if the position is held onto. Because that admission feels worse than the gain feels good, investors tend to sell winners to bank the good feeling and hold losers to avoid confirming the mistake.
The disposition effect can quietly hurt returns over time, since it tends to trim positions in companies that are performing well while letting money sit in underperforming ones on the hope of a recovery that may never come. Recognizing the pattern means judging a on its future prospects rather than on whether selling it would currently produce a gain or a loss.