#INVESTOR BEHAVIOR
Investors sell their winning stocks too early, and hold on to their losers too long.
Published on August 18, 2026
Terrance Odean studied 10,000 accounts at a U.S. broker between 1987 and 1993. Result: of all the winning positions they could have sold at a given moment, investors realize 58% of them — versus only 42% of their losing positions. This imbalance, called the “disposition effect,” means individual investors are statistically 1.5 times more likely to sell a stock that's up than one that's down.
Is this gap constant throughout the year?
No: the ratio drops from 2.1 in January to 0.85 in December, which coincides with tax-motivated selling of losing positions at year-end — a sign that some investors partly correct the bias when a tax incentive kicks in.
In other words: selling what's rising and holding what's falling isn't a strategy: it's the opposite of the usual market discipline, which says to cut your losses and let your gains run.
Three caveats, because they matter
- The study covers U.S. brokerage accounts from 1987-1993: taxation, tools and transaction costs have changed since then, which may alter the exact size of the bias today.
- Selling winners isn't always irrational: it can reflect intentional portfolio rebalancing, not just a psychological bias.
- The bias is partly explained by a belief in mean reversion: some investors wrongly think a falling stock is due to bounce back.
Why it still matters: a sell rule set in advance, independent of a stock's recent move, keeps loss aversion from dictating decisions at the worst possible time.
For you
- Have you ever held on to a falling stock simply hoping it would come back?
- Do you sell your winners faster than your losers?
Source: Terrance Odean, “Are Investors Reluctant to Realize Their Losses?”, The Journal of Finance, vol. 53, no. 5, 1998.
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