What I don't understand is why people sell when it's really low.
I have the problem that I not sell when I should because it's slightly in the red even though I know it will go down more. I don't sell because I don't want to make the loss.
Why aren't people refusing to sell then when it is a big loss??
Because it's never clear how close we are to the bottom of the drop. People see their portfolio dropping in value at an alarming rate and fear that it will continue dropping at that rate, so they pull their money out before it loses any more value. The "big loss" doesn't seem big when weighed against the hypothetically bigger loss that they think they'll incur if they *don't* sell.
A lot of people DO sell when the immediate spot price for their stocks drops big time.
Why don't I sell?
Because I don't confuse "the immediate spot price for my stocks" as the "value of my holdings", that's why.
I'll give an example using things we all understand, cars.
I buy a really cool antique car for $20,000. I drive it to work where a colleague sees it and admires it. We'll call him Sam.
Sam offers to buy the car for $30,000 because he loves this type of car and has always wanted them. I think about it for a minute and then turn him down.
That night, I go home and say, "Honey, Sam said he would pay $30,000 for our antique car!!! We just made $10,000!!!"
We're both very happy about how much money we just made.
A month goes by and I come out to my car to find a note on it from someone who wants to buy it for $15,000, but some water splashed on their phone number, so I can't find them. "OMG!!!! We just lost $15,000!!!! We better sell our car to the first person we can find to buy it, before we lose even more!!!"
Substitute "car" with the word "stock" and you'll see how most Americans view their stock holdings.
Now, hopefully, a few things were obvious. I didn't make a single penny when Sam offered me an immediate spot price of $30,000. Why? Because I didn't sell the car.
Nor did I lose money when I learned that some stranger only wanted to pay $15,000 for the car, again because I didn't sell it to them.
In both cases, I still owned the car and it's worth whatever it's worth.
Maybe it's the kind of antique that will grow in value over the years and maybe its' the kind that won't age well. I dunno. But that's got nothing to do with the immediate spot price I'm offered at various times.
