|  NOV 1987

The loss trap by Van K. Tharp, Ph.D.

The loss trap by Van K. Tharp, Ph.D. Do you remember playing with a toy called the Chinese Finger Trap when you were a child? This toy is a woven straw cylinder with an opening at each end just large enough for a finger. Once you insert a finger in each end, you are in the trap. You pull to get out and the trap closes around your fingers. The harder you pull to get out, the tighter the cylinder compresses around your fingers. The more you struggle with the trap, the more ensnared you become. Only when you let go and relax does the trap let go of you. Investment losses form a similar trap for most people—the Loss Trap. The more an investor resists losses, the more ensnared the investor becomes in the Loss Trap—a psychological snare with numerous hidden factors that keep people locked into it. The more the investor struggles with losses, the worse the losses become.

by Van K. Tharp, Ph.D.