In 2020, Terrance Odean — the UC Berkeley finance professor who has spent three decades studying retail investor behavior using actual brokerage records — published an updated analysis of trading data from a major US discount brokerage. The finding that has replicated across every dataset, every country, and every market regime since his original 1998 paper: retail investors are approximately 1.5 times more likely to sell a stock that is up from their purchase price than one that is down.

This pattern — called the disposition effect — costs the average retail investor an estimated 3-4% per year in a taxable account. The investors who sold their winners and held their losers would have been better off doing the exact opposite: holding the winners (which continued to outperform on average) and selling the losers (which continued to underperform on average, and would have generated a tax loss to offset gains elsewhere).