Definition
In U.S. financial slang, a bagholder is a shareholder left holding shares of worthless stocks.
What is a ‘Stock Bag Holder’
An informal investing word used to describe an investor who has a holding in a stock that has lost value to the point that it is no longer worth anything. Typically, the bag holder will maintain his or her position for a lengthy period of time, during which the majority of the investment will be lost or destroyed.
Explaining ‘Bag Holder’
For all practical purposes, the investor is left with a bag full of useless stuff, which represents worthless shares. Even when there is compelling evidence that the value of the investment will continue to decline, the bag holder will often keep his or her investment.
Several factors might contribute to this, including disregarding a failing portfolio, an investor unable to recognize a mistake, or just holding out faith that the company would improve. Setting loss limits and developing a sound exit plan are two strategies for avoiding this problem.
Further Reading
- Financial and external reporting research: the broadening corporate governance challenge – www.tandfonline.com [PDF]
- Looting: the economic underworld of bankruptcy for profit – www.jstor.org [PDF]
- The role of the state in financial markets – academic.oup.com [PDF]
- Monterrey consensus on financing for development: response sought from international economic law – heinonline.org [PDF]
