Not Willing to Admit (Short Term) Defeat?
Many investors hold on to losing positions long after it makes sense. It's easy to understand; no one likes to lose money, and many people will hold on to an investment that has gone down in value in hopes that it will someday recover. Studies show that investors are far more likely to sell when they make a profit than to sell when they have lost money. However, there are actually some very good and prudent reasons why it makes sense to sell stocks or mutual fund shares at a loss:
In any particular year when you sell shares for a gain, you will incur capital gains taxes. By selling certain shares that are underperforming for a loss, you can offset those gains and reduce or even eliminate taxes.
Anytime you hold onto underperforming stocks you are tying up capital that can be invested in stocks that have greater upside potential. You may record a loss (which can be used to offset gains) but it is only temporary if you can buy into stocks with upside.
By selling shares that have underperformed, you are not admitting defeat. You are simply adjusting your battle plan.