What is a One Night Stand Investment

A one night stand investment is a purchased security that was intended for a long-term investment, but is instead sold very quickly, many times as soon as the next day. One night stand investments are often sold urgently on the trading day after purchase, because the investor regrets buying the shares to such a degree that fear and panic begin setting in. This can even lead to immediate, short-term losses. A one-night stand investment is typical of an indecisive investor and is related to the field of behavioral finance.

BREAKING DOWN One Night Stand Investment

Much can change overnight in a company and an industry. An investor who researches an investment and buys one day, feeling that the company and its future are strong, may be panic-stricken and ready to sell the next day when unexpected news threatens his or her perceptions of the security of his or her long-term investment. The incidents instigating the sudden sale can include many things, such as the company's profits missing their target, industry shifts, acquisitions and regulatory changes.

A one night stand investment might also be the result of the stock not living up to expectations, outside events that may impact the stock, such as a competing company or a natural disaster that ruins a factory where the company is run. Or, a one night stand investment might boil down to simple fear on the investor’s part of having too much of their portfolio wrapped up in one investment. Experienced investors have a decreased likelihood of having a one night stand investment because they may be familiar with the emotions and fears that can happen with investing. Financial advisors and other stock market professionals may also be able to work with a scared investor to help them decrease their chance of having a one night stand investment by either encouraging them to invest in high quality stocks or to maintain a stock before selling rapidly.

Example of a One Night Stand Investment

An example of a one night stand investment could be Stan, a young investor who is very excited about a friend’s new up-and-coming company and purchases $60,000 in stocks in the company on a Monday evening. The next morning, however, Stan wakes up and realizes that he has made a grave mistake and is filled with fear about investing so much in his friend’s company. He immediately tries to sell off his share in the stocks, not realizing that such an abrupt and significant sale could actually damage the stake of the company and cause panic in other investors as well.