The Disposition Effect
You sell your winners way too fast and marry your losers. There's a name for it.
Grounded in the research on the disposition effect
the move you keep making
You buy two stocks. One's up 20%, one's down 20%. You need cash, so which do you sell? Most people dump the winner and white-knuckle the loser. That's the disposition effect: a hardwired pull to realize gains too early and ride losses too long. You lock in small wins to feel smart and let losers bleed because selling makes the loss feel real. Backwards, and you do it on autopilot.
who named it
Hersh Shefrin and Meir Statman coined the term in 1985, in a Journal of Finance paper with the perfect title: 'The Disposition to Sell Winners Too Early and Ride Losers Too Long.' They weren't theorizing in a vacuum. They tied the behavior to four forces stacked together: prospect theory, mental accounting, regret aversion, and self-control. The name stuck because the pattern is everywhere once you see it.