08 Sep Loss Aversion

Curious Investor Behaviour – Number 10

Loss Aversion

According to empirical evidence, the pain of losing $100 is felt more than twice as much as the pleasure of gaining the same amount (Kahneman and Tversky, 1992).

Sadly, this irrational approach is evident in the stockmarket. Many investors keep hanging on to losing stocks in the hope that, some day, somehow, they will bounce back. Such is the distaste for loss that it causes a mental freeze which renders people incapable of sound judgement.

Loss aversion is a common condition. Think about it- facing a loss, do you sometimes freeze and refuse to acknowledge reality?

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About Reuben Zelwer   Reuben Zelwer established Adapt Wealth Management in 2011 to help time poor clients achieve financial freedom. For over 15 years, Reuben has helped professionals, executives, business owner and those approaching retirement make the most of their circumstances by making good financial decisions. Reuben’s professional practice is complemented by substantial voluntary work, which has included setting up financial literacy and savings programs in the local community.