What tends to happen if investors hold onto a declining stock for too long?

When investors hold onto a declining stock for too long, they may incur larger losses. This occurs because the value of the stock continues to decrease as time goes on, and the investor does not take action to sell the stock to mitigate their losses. By waiting for a rebound that may never happen, they risk watching the investment lose even more value.

Investors might hope for the stock to recover, leading them to overlook negative market trends or company performance issues that suggest further declines. Consequently, what begins as a small loss can escalate significantly, leading to more substantial financial damage if the stock continues on its downward trajectory. This mindset can be detrimental, as it often delays taking necessary actions to limit losses and can result in lower overall returns in the long run. Therefore, recognizing when to cut losses is a vital part of investing strategy.