Bag Holder Meaning in Investing

A bag holder is called somebody who is desperately holding onto his assets or stocks while they are dropping in price. Despite the clear signals that the stock is heading to zero, a bag holder keeps holding it until finally, their price reaches zero indeed.

The term comes from the time of the Great Depression when people on soup lines used to hold their bags for potatoes. In these bags, they had their only possessions.

Since those times, the term is used for the modern trading world. Now, it has become widespread in crypto, too.

Examples of Bag Holder Stocks in Crypto

Bag holders become such because of different reasons. To start with, we are talking not only about beginners or individual users. Those can be also businesses, experienced investors, or even milliard-worth investment fund managers.

Bag holders who have purchased an asset with growth potential

A company releases a new product, in our case, it can be a token that shall change the world. Airdrops are promising. Rates for locking the token in a liquidity pool are impressive. The token seems to have huge potential.

Impressed by the hype, people start buying the token. But when the hype is over, it appears that the token doesn’t deliver much value. The pumped price starts plummeting. But investors still are afraid of even thinking that their investment’s value may vanish and hold onto the token until its price drops to less than hundreds of a cent.

Bag Holders who have invested in stock at its peak

Here, it is harder to find examples in the crypto world because the sector is still young. But in the retail sector, Sears can serve as a perfect example.

In 2007, Sears was at its peak development, with stocks of the company traded at $125 per stock. Many funds invested impressive sums of money in Sears’ stocks at that time. But further, the company had difficulties and even filed for bankruptcy in 2018. Even though the company didn’t go out of business, its stock value dropped to $0.02 on the first trading day in 2022. Those people who still have the Sears stocks can serve as a perfect example of a bag holder.

How to Avoid Becoming a Bag Holder

Many investors, especially beginners, have a lot of biases. These biases make them buy a stock that doesn’t have any real value and keep on it until it becomes too late. That’s why it is important to identify those biases and study the possible ways to get rid of them.

How to do it?

We can give some examples but the list is not complete.

Everybody is talking about the project and it looks like the entire world is buying the stock? Make sure insiders are doing the same. If insiders are selling their shares, there might be something wrong with the project.
Make sure the project delivers real value. If it focuses on solving some real-world issues, most likely, it has potential. But if it exists just because the team thought it would be fun, you may double-check before investing in it.
If the project is hyped up but behind it, there are people who have failed several times (take the Terra-Luna example), you cannot expect them to succeed this specific time just because you want to buy a share in the project.

Here, we don’t aim at listing all the possible examples. The main idea is that every investor shall learn as much as possible about the potential investment option and understand the risks clearly.

How Does Bag Holding Work in Trading?

It doesn’t work. Bag holding doesn’t work in any sector. But in trading, there are indicators that you are becoming a bag holder:

You are holding big losing positions
You turn short-time trades into investments
You defend your losing positions.

If you notice that something like this happens to you, your funds are in danger. Revise your investment portfolio and get rid of stocks that haven’t been performing properly for a long time despite comfortable market conditions.

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