The financial market is a dynamic environment that goes through ups and downs in cycles. The…
A bag holder seems like a literal description of someone holding a bag. However, it has a different meaning when used in the financial sector.
In our previous post about crypto slang, we already included this expression. Nevertheless, in this blog post, we will solely focus on this expression so that you can understand it better.
The term bag holder refers to people who hold on tightly to their digital assets. Even if the value of the assets is already at zero, bag holders still will not sell.
Bag holders act this way because they hope that the cryptocurrencies they bought will still bounce back and eventually give them profit.
Origin of BagHolder
The Urban Dictionary traces the origin of ‘bag holder’ to the Great Depression when people joined soup lines holding potato bags that contained their possessions. From that moment, bag holders became part of the investing world’s vocabulary.
Why do Bagholders Commit Bagholding?
There are many reasons why people act this way. The first possible reason is their stubbornness. They believe that if they hold and wait patiently, there will be some profit to make from it.
Next, they may be experiencing the “disposition effect.” This means that crypto investors hold on to their devalued crypto assets for too long but sell too quickly in their digital currencies that perform well.
Lastly, people do bag holding because they are too emotionally invested. They fall prey to the sunk cost fallacy. They believed too much in the hype that they did not want to let go of their sunken cryptocurrencies. Also, they want to be happy with their investment ultimately.
Steer Clear from Being a Bagholder
Here are some ways to prevent yourself from becoming a bag holder.
First, check your biases. You don’t need to follow the textbook version of behavioral biases in investing. Determine the major ones, create a checklist, and use it as your guide when you start feeling frustrated.
Second, practice the continuous evaluation of your assets. Take notes of what the management tells you and check it against the results. Try to conduct assessments on an annual basis. This will help you figure out when to sell and when to hold.
Third, research the cryptocurrencies you are interested in. The hype for a particular crypto asset does not guarantee its reliable long-term performance.
In conclusion, bag holding mostly works against an investor because it makes them miss out on other opportunities that may work out better for them. Also, remember that investing comes with risks and big rewards.
An investor must know how to accept his losses and move forward. Additionally, the market is constantly moving upwards or downward. If you experience losses, it is not for a long period of time. Prepare yourself and do better in the next bullish season.