Investing Habits of Individual Investors and the Fat Tail Effect
Locking in 5-10%: a common habit of retail investors There's a common investment habit among retail investors: locking in profits when returns reach 5-10%. It's an instinctive reaction to avoid further risk and play it safe when you're guaranteed a return above the bank rate. However, this behavior is not always correct, as it violates the principle of "going long on profits and short on losses." This habit can lead to small profits and large losses. Regret after you've locked in your profits If you decide to sell when you reach 5-10% profit, and the stock price rises further afterward, you'll be left with a lot of regret and remorse. Especially if the stock price continues to rise after you've locked in your profits, reaching over 100% above the price you sold at, you'll be shocked. In this situation, investors often end up buying back at the peak, and end up losing a lot of money. To avoid this pattern, you need to understand the concept of the ...