Bagholder

What Is A Bagholder?

A bagholder is a financial slang that refers to an investor who holds a position in an asset that is reduced in value and is now entirely worthless.

Deeper Definition 

In financial terms, when someone is “holding a bag,” it means that they are stuck with an investment that is worthless or nearly worthless. “Bagholder” is a financial slang that refers to a shareholder holding the shares of valueless stocks. The term originated from the combination of “shareholder” and the expression “left holding the bag”. It describes investors who lose money by being the last owners of a failing investment.

A bagholder holds on to an investment that is performing poorly, hoping that it would rebound despite the slim chance. They may doggedly hold on to the asset for an extended period. During this period its value would plummet to zero, eventually making that asset worthless.

There are two potential sources where the term originated from:

• The expression “left holding the bag”: Is an expression born in eighteenth-century Britain. A person left holding the bag is someone stuck with stolen goods. When caught by the police, the person takes the blame while the rest of the thieves escape.

• The Great Depression: This theory claims that people used the term to describe people who held potato bags filled with their only possessions while standing in soup lines during the Great Depression. 

There are several reasons why an investor may hold onto an asset that is not performing well. They include but are not limited to:

• The investor was neglecting his portfolio when the asset started going down, so they missed the chance to offload the bag. 

• The investor still hopes that the asset will rebound. They believe that the drop in value is a setback and that the price would pick up over time.

• The investor is in denial and does not want to come to terms that they made a bad investment.

Bagholder Example 

George invests in a cryptocurrency worth $15 per coin during the bull market when coin prices are experiencing a steady increase. Shortly after making the purchase, the coin price drops to $12. George believes the drop is temporary, so he holds on to it, hoping to sell it when the price goes high. However, weeks later, the coin price drops to $5. Now George is left holding the bag because he doesn’t want to sell at a loss.