How do you overcome your love bias when investing?
Back in the late 1970s economist Richard Thaler coined a phrase to describe an irrational tendency to overvalue (or love) something just because we own it. This is the endowment effect.
Thaler demonstrated one scenario where a man owned a case of wine that he had bought for an average price of $35 a bottle. When he was offered $100 a bottle, he refused, even though he personally would never pay more than $35 for a bottle of wine.
It is in selling our assets or in a bear market that the endowment effect can hurt us. We don't sell when we should, and then we are left stuck with each other and miserable.
Love can last forever, but when it comes to investing the head must always rule the heart.