People often think their homes and other possessions are worth more than they are.
According to the Journal of Economic Perspectives, that’s why sellers of cars or homes usually ask a higher price than buyers are willing to pay for the property. It’s called the ‘endowment effect.’
From an investment standpoint, the tendency to hold on to things too long can cause problems, and the endowment effect is responsible for the poor decisions of many people.
With personal investments, Charles Schwab recommends taking the time to ask a few questions about an investment that is performing poorly.
First, determine if you would repurchase the stock at the current price.
Second, decide if the original rationale for buying the stock, such as a competitive advantage or unique strategy, still exists.
Third, look around for better options and consider reallocating the money to the better prospects. The best advice is just not to get overly attached to a portfolio.
The key is: If it no longer works, let it go.