The single biggest mistake that underwater bagholders make

Thinking their entry price matters means anything.

This it is not an easy thing to explain. It borders on philosophy, but I will do my best to explain my opinion. If you disagree, that is ok, but I hope to generate a useful discussion from this, since this situation applies to many people today. I am interested to hear what others think.

I read threads saying “Hey I have 1000 share of XYZ at $150.” (Reading between the lines, “Will it get back to $150?”) The single biggest mistake that underwater bagholders make is to anchor on that entry price. Trying to break even.

Bill buys XYZ at $150, and it drops to $100. Now, if Tom buys at $100, would Tom ever say, “I will only sell at $150 because that's where Bill breaks even”? No, because Bill's entry price has nothing to do with Tom or the stock. Tom does not even know about Bill. Likewise, your own past entry price has nothing to do with the stock's current or future performance. Let's now say you never bought at $150, and you first discover the stock at $100, would you come fresh and buy today and say, “I will sell at $150”. No, you are not even aware that it traded at $150, and that is now a totally random number from thin air, and has nothing to do with the stock trading at $100 today. In both cases, you are buying at $100, but with totally different targets, one because of a random personal action in the past, that is totally disconnected from the actual stock prospects today.

Refusing to take a loss? (“Only a paper loss”)? To be clear, I am not saying you must sell, but understand the money is already gone. Your brokerage statement says your account balance using today's price, not your entry price. Ignoring tax implications, you are effectively buying back the stock at today's price. Every day. Hold if you're still bullish, or maybe DCA more if you're really bullish. As they say, if you liked it at $150, then you really like it at $100.

But, be clear on this, the market and your account does not care about your entry price. It is meaningless to what the stock is going to do. Holding until the stock reaches some random price it was in your past only is ____________________ .