Mary Pieterse-Bloem, Professor of Financial Markets at Erasmus School of Economics, discusses tile wisdom in investing in an article published by NRC Handelsblad. In the article, Pieterse-Bloem gives her views on various tile wisdoms.
‘Cut your losses and let your profits run’
This wisdom states that if you make a loss on a stock on paper, you should sell and that if you make a profit on paper, you should hold on to the stock. Although the wisdom is financially correct, it often goes wrong in practice. ‘The problem is that taking your losses goes against human nature,’ says Pieterse-Bloem. Especially with individual stocks, this plays a big role, says the Professor. After all, you have often put a lot of time and effort into researching the stock, which makes saying goodbye difficult for many people.
‘Buy on the rumor, sell on the fact’
The statement implies that you should buy at a prediction or rumour and that when the news comes out and attention to the stock rises, you should sell the stock. Pieterse-Bloem absolutely disagrees with this tile wisdom. ‘If we could do this, we would all be multimillionaires,’ the Professor argues. To be the first to hear such information almost always requires inside information, which is punishable, she continues.
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You can download the full article from NRC Handelsblad, 28 January 2023, above.