According to a new research paper from two finance professors at Penn State, investors are hard-wired to think differently about their losing stock picks than they do about their winning stock picks. CXO Advisory Group has put together a brief summary of the research paper, noting that people appear to pay more attention to new information (e.g. newspaper headlines, talking heads on CNBC) when losing money on a stock position. Investors passively accept good information about stock picks and actively scrutinize bad. Not only that, but investors are also more likely to invest again on a prior pick when realized returns are negative than positive, and they tend to increase the size of the bet on it.

So what does all this mean for the average investor? From a behavioral finance perspective, it means being aware of your inherent human biases when investing. On TV, it might be fun to root for the Biggest Loser. In the financial markets, though, rooting for your Biggest Loser might turn out to have serious adverse consequences for your portfolio.

[image: The Biggest Loser]