If you were being honest, would you find investments in your portfolio you are holding because of emotional reasons rather than because they continue to make the most financial sense? This is something our advisors at Fi3 often discuss with clients. Michael Pompian has been writing a series for Morningstar on Behavioral Finance and Macroeconomics and tackles endowment bias in a recent article.
People who already own an investment – perhaps something they’ve inherited from a relative – are oftentimes less likely to part with it. Pompian gives the example of a woman who has inherited bank stock from her grandfather and hesitates to sell it, even though her portfolio is under-diversified. He suggests the investor ask whether he or she would utilize cash to buy that investment again at today’s price. If the answer is “no,” you might very well be a victim of endowment bias, and you are holding the investment simply because you already own it.
Read the full article, "Would You Buy That Investment Again at Today’s Price?"