Respect Survivorship Bias

2 min read

The Harsh Reality of Stock Survival

Discovering an eye-opening statistic from the World Federation of Exchanges sheds light on the precarious nature of stock survival. Over the past 28 years, a staggering 43% of stocks in US markets have vanished, highlighting a significant survivorship bias. While recent stock performance may seem promising, the long-term outlook can be far less certain, with many stocks failing to endure over time.

Source : Federation of Exchanges (World Bank)

Navigating the Perils of Holding

For investors, especially those not focused on short-term gains, the issue of stock survival poses a considerable challenge. Holding onto a stock through fluctuations can be tempting, especially when hoping for a rebound. However, the reality is that stocks may not always recover, facing obsolescence or competition in an ever-changing market landscape.

Accepting the Reality of Loss

One of the most significant barriers to successful investing is the reluctance to accept losses. Anchoring bias, rooted in the initial purchase price of a stock, can cloud judgment and lead to prolonged holding periods. However, booking losses when necessary is crucial for safeguarding investments and avoiding further downturns.

Investors must reevaluate their investment theses regularly and be willing to adjust their strategies accordingly. Rather than clinging to the hope of a stock returning to its former glory, it’s essential to reassess its potential for growth and viability in the current market environment.

Learning from Market History

Looking back at market history can provide valuable insights into the unpredictable nature of stock performance. Many stocks that were once considered stable and promising have vanished over the years, emphasizing the need for caution and diligence in investment decisions.

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    Respect Survivorship Bias