GDB “Investment Analysis and Portfolio Management (FIN630)”

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“Many people avoid selling stock at a loss. Briefly state the behavioral finance phenomenon that might explain this tendency.”

[Awais]

Question:
“Many people avoid selling stock at a loss. Briefly state the behavioral finance phenomenon that might explain this tendency.”

Answer:
Selling stock is procedurally similar to buying stock. Generally, the investor wants to buy low and sell high, if not in that order (short selling); although a number of reasons may induce an investor to sell at a loss, e.g., to avoid further loss.
As with buying a stock, there is a transaction fee for the broker's efforts in arranging the transfer of stock from a seller to a buyer. This fee can be high or low depending on which type of brokerage, full service or discount, handles the transaction.
After the transaction has been made, the seller is then entitled to all of the money. An important part of selling is keeping track of the earnings. Importantly, on selling the stock, in jurisdictions that have them, capital gains taxes will have to be paid on the additional proceeds, if any, that are in excess of the cost basis

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[sanam]

“Many people avoid selling stock at a loss. Briefly state the behavioral finance phenomenon that might explain this tendency.”

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