Bag Holder

What is Bag Holder?

A bag holder is a term used to refer to investors or individuals who are stuck with something that is completely worthless or almost worthless. Such a person is said to be left “holding the bag”. For example, if you buy a real estate property (maybe a house) and you spend more than the amount you bought the house on renovations you can be said to be “left holding the bag.”

This term is totally relatable to stocks as it also describes the state of an investor who is in possession of an asset or security that continually decreases in value until it is completely worthless. For instance, if you just bought a company stock at $25 per share only to later realize that the company had been fraudulently inflating the numbers to attract investors, whereas, the actual price is $4. In such a case you can be said to be a bag holder, being in possession of an asset that is completely worthless. Another instance can be when an investor purchases about 200 shares of a newly public-traded company with a promising future of good returns. It is expected that the share price rises during the initial public offering (IPO). The investor is in the risk of being a bag holder when the share prices begin to drop significantly and analysts begin raising significant observations and questions about the state of the company.

Who is a Bag Holder?

A bag holder is an investor who holds a bag of stock that has gradually become worthless over time. Being a bag holder is not something investors plan for, but there are significant steps to take if you want to avoid holding the bag such carefully reading financial statements, identifying possible red flags, listening to conference calls, and looking up other public financial information about a company before buying its shares.

If you are not sure whether or not you are a bag holder or a potential bag holder, then here are a few tips that would help you reveal your bag holding status.

• Making unnecessary excuses for a failing company, “This is a great company I’d give it some time to get back on track”, “These prices are really cheap maybe I’d just buy a little more”, “I’ll be so rich whenever the number go back up.” Some of these statements are relatable to many investors and they may not be so bad until when a company begins to face a financial downturn.

• Defending a losing position; refusing to sell a stock at any cost regardless of the current situation of the company. “What if I sell today and the price goes back up by tomorrow?” The fear of taking a risk forgetting that investments are all about taking risks.