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May 3Doug Smith

Buzzword of the Week: Bag Holder

May 3Doug Smith

Have you ever been left holding the bag? What was in that bag? A friend of mine used to say that the hopeful person, when handed a bag of manure, would root around with his hand saying “I know there’s a pony in here somewhere!”

According to our friends at Investopedia, a Bag Holder is an informal investment term used to describe an investor who holds a position in a stock which decreases in value until it is worthless. Typically, the bag holder will hold the position for an extended period of time in which most of the investment is lost.

Symbolically, the investor is left holding a bag full of worthless material, representing worthless stock. The bag holder, typically, will retain an investment even though there is convincing evidence that the value will continue to drop.

There are several reasons this might happen, such as neglecting an underperforming portfolio, an investor not wanting to admit a mistake, or just plain hope that the stock will recover. Setting limits on losses and having a good exit strategy are ways to avoid this situation.

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