Disposition effect
Certified Financial Planner glossary · Certified Financial Planner
Definition
The behavioral tendency to sell winners and hold losers, which is both economically and taxinefficient.
Disposition effect in plain English
The portfolio is full of losers the client "does not want to lock in," while winners get sold the week they peak. That pattern is the disposition effect: the behavioral tendency to sell winners and hold losers, which is both economically and tax inefficient. Loss harvesting and rebalancing fight it; ego often feeds it. When a stem shows asymmetric realization of gains versus losses with thin fundamental rationale, name the bias before you pick a product.
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