Why the “Endowment Effect” Makes You Overvalue Your Investments

Stop loving your portfolio just because it’s yours.

Photo by Jonathan Saavedra on Unsplash

In this article, we’ll cover the disposition effect, one of the most common mistakes I see among beginner investors.

Author’s Note: This article is part of my series on investing psychology:

12 Common Mistakes That Can Destroy Your Investing Profits

The Endowment Effect — What is it?

The endowment effect is the tendency of investors to value stocks they already own as more valuable than they really are.

How does the endowment effect apply to investing?

Investors sometimes have a tendency to “fall in love” with stocks they own.

There are several reasons why this happens, but the bottom line is they become attached to their stocks and hold them longer than they should.

Let’s look at a few examples of how the endowment effect plays out in investing.