Finance glossary
Disposition Effect
Definition
The tendency to sell winning investments too early and hold losing ones too long.
The disposition effect describes investors' pattern of realizing gains quickly, locking in the good feeling of a win, while holding onto losing positions far longer than the fundamentals justify, hoping to avoid admitting a mistake. Over time this behavior tends to drag down overall portfolio returns.
In a sentence
The disposition effect showed up clearly in his trading history: quick to sell winners, painfully slow to cut losers.
Get a word like this every morning
Word of the Day on your Home Screen, with quizzes and flashcards. Get the app →