The disposition effect is tendency of investors to sell shares whose price has

increased, while keeping assets that have dropped in value.

Stocks that have done well over the past six months tend to keep doing well over
the next six months; and that stocks that have done poorly over the past six
months tend to keep doing poorly over the next six months.” This being the case,
the rational act would be “to hold on to stocks that have recently risen in value;
and to sell stocks that have recently fallen in value. But individual investors tend
to do exactly the opposite.

Two situations.

In the first, they had $1,000 and had to select one of two choices.

 Choice A,
 they would have a 50% chance of gaining $1,000, and a 50% chance of
gaining $0;
 Choice B,
 they would have a 100% chance of gaining $500.

In the second situation, they had $2,000 and had to select either

 Choice A (a 50% chance of losing $1,000, and 50% of losing $0) or Choice B
(a 100% chance of losing $500).

The majority of participants chose “B” in the first scenario and "A" in the second.
This suggested that "people are willing to settle for a reasonable level of gains
(even if they have a reasonable chance of earning more), but are willing to engage
in risk-seeking behaviors where they can limit their losses. In other words, losses
are weighted more heavily than an equivalent amount of gains.

Avoid

Don’t sell stocks without a very good reason Price declines are not a
good reason. When a stock’s price declines, you can buy more at a better price.

Selling underperforming assets