“Sell in May and go away” is an investor strategy that claims to benefit from seasonal swings in markets, cashing-in on the highs of spring, and buying again in the fall.
Regardless of the track record of this jingle, now is the time to ask how many stocks in your portfolio — and items in your possession — you would buy again if you started fresh today with a clean slate.
Endowment effect is an insight from behavioural finance, which says that we value something more just because we already have it. It’s why that stock or sweater sits there underperforming or unworn, yet somehow we just can’t part with it.
This “divestiture aversion” prevents us from letting go of something we already own (and/or admitting that we were wrong or it wasn’t the wisest purchase!) Do you have this endowment effect when you’re evaluating your portfolio or wardrobe or miscellaneous drawer (à la #mariekondo)? Would you buy the same thing again if you had its value in cash?
Is it really going to earn its value back for you because it damn well deserves to (that’s the emotional bias we have towards our stale possessions) or would a fresh start better suit the part of performing?
Spring is the time to ask not only does this item bring you joy, but does it bring you closer to your financial objectives?
Let us know in comments what you discover when you spring clean your finances (and closets)!