The Face Factor
Why Some Portfolios Carry More Than Money
There is a stock that should have been sold years ago.
The numbers have been clear for some time. The business model changed. The dividends shrank. Anyone looking at this position fresh, with no history attached to it, would not hold it.
But it does not get sold.
Because a father bought it.
This pattern shows up more often than the behavioral finance literature acknowledges. Most of that literature comes from the West, where investment decisions are treated as individual acts. In Asian families, they are rarely that simple.
The clinical explanation begins with loss aversion. Kahneman and Tversky mapped its mechanics in their 1979 Prospect Theory research long before it encountered the complexities of the Asian dinner table. The pain of a loss registers as roughly twice as powerful as the pleasure of an equivalent gain. Selling a losing position makes the loss real. Holding keeps the possibility of recovery alive.
Thaler extended this with the endowment effect in 1980. Once something is owned, it becomes more valuable in the mind of the owner than it would be to anyone else. The act of ownership changes the psychological relationship to the thing held.
These two forces together explain much of why people hold positions longer than the evidence warrants. In Asian families, a third layer sits on top of them. It is the need to honour the person behind the trade.
The endowment effect applies to objects. In Asian families, inherited investments carry something additional. They carry the story of the person who chose them.
A father researched a company. He believed in it and held it through difficult years. He talked about it at reunion dinners. When he passed, the shares were passed on to the family.
Selling that position is not just a financial transaction. It is a judgment. It closes the story of his decision and decides how that story ends. In cultures where filial respect is not abstract but practiced, that closing feels like a verdict on the person.
Face operates at the family level, not just the individual level. Mianzi (面子), the Chinese concept of social dignity, extends to how one treats what a parent built. Selling what a father chose signals at some level that his choice was wrong, that he did not see what was coming, that the inheritance itself was flawed.
Most families are not ready to make that statement. So the position stays.
Shefrin and Statman documented this pull in 1985. They called the disposition effect. It is the systematic tendency to sell winners too early and hold losers too long, because the pain of realizing a loss exceeds the relief of moving on.
In inherited portfolios, the effect intensifies. The reference point for the position is not just the purchase price. It is everything the purchase represented. What the father believed. What the family held during hard years. What was passed down as something worth keeping.
That is an unusual reference point. It makes the psychological cost of selling far higher than any spreadsheet captures.
Singapore has watched this play out with its blue chips across generations. Names that once paid reliable dividends and sat in benchmark indices for decades. Companies that felt permanent. The kind of position a sensible father would have chosen.
Some of those companies changed. Industries shifted. Business models that worked across decades became unworkable in a few years. The world moved faster than the attachment to the position did.
Shareholders who held out of loyalty were eventually forced to a reckoning anyway. It was not by their own judgment, but by privatisation offers, mandatory buyouts and delistings. The choice was made for them at a fraction of the original value. They lost both the money and the moment to decide on their own terms.
Thaler’s work on mental accounting describes how people keep separate psychological ledgers for different pools of money and investment, even when the dollars are identical. In the mind, the portfolio and the relationship merge into a single account whose balance becomes impossible to separate. The stock and the person who bought it occupy the same ledger entry.
It does not register as a bias. It registers as loyalty. Loyalty is rarely questioned.
The behavioral cost is that the memory seems to live in the stock certificate, even though the father’s story was never about the certificate at all. What he built, what he meant, what he passed on does not trade on the Singapore Exchange. The shares do.
The dividends paid for school fees. Family holidays. Reunion dinners. That history is real.
But the stock was never the point. Taking care of the family was. That obligation does not expire when the company changes. It just needs a different vehicle.
This article is for educational purposes only and does not constitute financial advice. Please consult a qualified professional before making investment decisions.