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Endowing Success

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Holding winners well past their alpha generation is a tendency recently identified among professional investors. These once highly productive buys inevitably devolve towards reversion to the mean, yet they seem to hold a special place in the minds (or is it hearts) of the managers.

When an investor holds winners for too long, they may be victim of the Endowment Effect. The theory relates to us valuing items higher when we possess them, making it more difficult to find a clearing price. Ultimately, the effect stifles selling.

This essay examines the Endowment Effect and how it can impact the management of portfolio positions.

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