3. How do I act?
3.2.7 · 35–55 minutes · reflect, test, discuss, review
3. How do I act?
What you will learn
- Distinguish sunk cost from future consequences.
- Recognise the disposition pattern without imposing a trading rule.
- Review a holding using current evidence and alternatives.
3.2 · The Human Side
The Human Side
The Human Side · the work you will do
- 1What do I know?
- 2What influences me?
- 3How do I act?
- 4Record and review
Before you begin
Your first decision
You have two fictional holdings. One has risen and makes you feel pleased; the other has fallen and makes you feel defensive. Cover the purchase prices. What would you need to know to decide whether either still belongs in the portfolio?
Record your first answer before continuing.
Video coming soon · about 4 minutes
Hold, Sell or Start Again?
Use the narration below while the recording is being made, then try the decisions in this lesson.
Read the full narration
You have two fictional holdings. One has risen and makes you feel pleased; the other has fallen and makes you feel defensive. Cover the purchase prices. What would you need to know to decide whether either still belongs in the portfolio?
In this lesson, notice what affects your own judgement. You do not need to invest real money or share personal financial information.
Holding is a choice about the future, just as selling is. Compare today’s business prospects, price, risks and alternatives. Time or money already spent researching the idea cannot be recovered by defending it. Future exit costs, taxes and commitments can still matter, so separate those consequences from the wish to justify your earlier choice.
Odean’s investor-account research found a preference for selling gains rather than losses in the sample studied. This is called the disposition effect. It is a useful pattern to investigate. It is not a rule telling you to sell every falling share or keep every rising one. Your task is to explain the current case.
A share that rose can be overpriced, fairly priced or still attractive. A share that fell can recover or deteriorate further. The labels do not tell you the future cash flows. Write a short case using today’s evidence before uncovering the price history. Then add any history that is relevant, such as tax or earlier expectations.
“I am a long-term investor” is incomplete if the business case has broken. “I cannot stand the loss” is incomplete if the evidence still supports holding. Choose an action, explain the opportunity you give up, and set a review condition. Waiting for specified evidence can be reasonable when you say what it is and when you will check it.
Pause for the worked example and the choices. Use the feedback to improve the explanation, then apply it to the fictional case. Keep your first view as well as any revision.
Which holding was harder to assess fairly? State a reason to hold or sell that does not depend on wanting to feel right about the original purchase.
You are making a new decision now
Holding is a choice about the future, just as selling is. Compare today’s business prospects, price, risks and alternatives.
Time or money already spent researching the idea cannot be recovered by defending it. Future exit costs, taxes and commitments can still matter, so separate those consequences from the wish to justify your earlier choice.
Research and nuance
A holding review asks what action now best fits current evidence and the owner’s objective. Compare future prospects, price, risk, costs, tax and alternatives. Irrecoverable past spending alone does not justify more spending. Some exit costs and commitments are future consequences and therefore relevant. Separate them from a desire to defend an earlier decision or recover a particular entry price.
Notice a pattern without turning it into a rule
Odean’s investor-account research found a preference for selling gains rather than losses in the sample studied. This is called the disposition effect.
It is a useful pattern to investigate. It is not a rule telling you to sell every falling share or keep every rising one. Your task is to explain the current case.
Research and nuance
Odean’s historical investor-account research documented a preference for realising gains rather than losses in its sample. This disposition pattern is a group-level observation, not a rule that every losing holding must be sold. Do not infer the quality of one pupil’s reasoning from whether they hold or sell. Examine the current investment case and the relevant constraints.
Winner and loser describe the past
A share that rose can be overpriced, fairly priced or still attractive. A share that fell can recover or deteriorate further.
The labels do not tell you the future cash flows. Write a short case using today’s evidence before uncovering the price history. Then add any history that is relevant, such as tax or earlier expectations.
Research and nuance
A winning holding can become overpriced, fairly priced or still attractive. A losing one can recover, deteriorate further or remain appropriately valued. The labels winner and loser describe a chosen historical reference; they do not supply future cash flows. Review the thesis and valuation first, then add history where it has a justified role such as cost basis, tax or understanding prior expectations.
Give patience a reason
“I am a long-term investor” is incomplete if the business case has broken. “I cannot stand the loss” is incomplete if the evidence still supports holding.
Choose an action, explain the opportunity you give up, and set a review condition. Waiting for specified evidence can be reasonable when you say what it is and when you will check it.
Research and nuance
State whether to hold, reduce, exit, add to research or investigate an alternative, and why. A patient decision needs current evidence, not simply a refusal to admit error. A rapid sale needs a reason beyond discomfort. Record the opportunity forgone and the conditions for another review. This remains a hypothetical learning task with no real trading or personal financial disclosure.
A fresh holding review
Holding A has 100 shares at current £7; its original price, revealed later, was £10. Holding B has 100 shares at current £12; original price £8. Ignore distributions, fees and tax for these historical-return calculations. Current value ranges are uncertain teaching estimates, not supplied in this arithmetic step.
- A current value £700 versus cost £1,000:−30%.
- B current value £1,200 versus cost £800:+50%.
- Current combined value=£1,900. Neither historical percentage tells us which future holding is preferable.
A decision to raise cash or change a holding requires current prospects, alternatives and constraints. Selling B merely because it is up or retaining A merely to recover £10 is not a complete argument.
Put it into practice
1. Review without entry prices
Before revealing costs, list the current evidence you need for A and B and describe how a cash deadline could affect the decision.
Write your response in your workbook before opening feedback.
Compare with a model response
Request updated business facts, valuation, liquidity, concentration and available alternatives. A cash deadline can matter, while past gains/losses alone do not establish the best holding.
2. Distinguish costs
Sort a past research fee that cannot be recovered, a future exit fee and a binding future commitment by relevance to today’s choice.
Write your response in your workbook before opening feedback.
Compare with a model response
The irrecoverable research fee is sunk. The exit fee and future commitment can affect available actions and consequences. Do not confuse sunk cost with every cost linked to an earlier decision.
3. Write the holding memo
Prepare 120–150 words explaining what would justify patience and what would justify exit, without a universal trading slogan.
Write your response in your workbook before opening feedback.
Compare with a model response
Patience requires a still-supported current case and fit with constraints; exit may follow deteriorated value, a better alternative or a binding cash need. Include costs and specific evidence. Avoid “always sell losers” or “never sell at a loss”.
Notice your own judgement
Which holding was harder to assess fairly? State a reason to hold or sell that does not depend on wanting to feel right about the original purchase.
Original On Judgement teaching. Research and further reading: Likierman; Odean; Yale teaching.
Jargon buster
Sunk cost
Past irrecoverable expenditure that cannot be changed by the current action.
Disposition pattern
A tendency to realise gains more readily than losses in a studied group.
Holding review
A reassessment of a current position and alternatives.
Exit cost
A future consequence of selling or closing an action.
Cost basis
A historical cost reference relevant to records and sometimes taxes.
Thesis drift
Changing the reason for a holding without acknowledging the change.
Knowledge check
Make each choice on the page. Feedback explains the reasoning. Use Try again after revisiting an idea.
AQA connection and further reading
AQA 7138 applied links: AO 2–AO 4 evidence, analysis and evaluation (4.2); uncertainty and change (3.3.4), with quantitative interpretation in Annex 6 where used. Named psychological effects and calibration methods are investing enrichment, not specified AQA content. Classroom exercises illustrate processes; they do not diagnose individual traits.
AQA 7138 specification
Primary curriculum reference; links and original classroom rubrics are interpretive, not endorsement.
Likierman · six elements explained by London Business School
Public LBS explanation checked on 1 November 2026. Six elements are attributed to Sir Andrew Likierman; the three-area grouping and investing exercises are On Judgement adaptations, not his published model or an endorsement.
Andrew Likierman · Judgement at Work: Making Better Choices
Publisher book page. The full book has not been reviewed; teaching uses the publicly explained six-element framework with original examples.
Odean (1998) · disposition study abstract
Author abstract of historical account research. Findings do not supply a universal individual hold/sell rule.
Understand yourself as an investor
How did owning the asset affect the reasons you gave? Compare current alternatives using the same objective and relevant costs.
Keep this reflection private unless you choose to share. Use evidence from the fictional exercise; no personal finances or fixed investor-personality label is required.
Take forward
Distinguish sunk cost from future consequences. Recognise the disposition pattern without imposing a trading rule. Review a holding using current evidence and alternatives.