WTI crude has fallen from approximately $109 per barrel in late April to around $89 this week, a decline of more than 18%. For clients who built energy exposure during the Hormuz rally, that number feels like a warning. The instinct it produces is well-documented: sell while you can still call it a profit.
This is the disposition effect. Shefrin and Statman named it in their 1985 paper in the Journal of Finance. It describes the systematic tendency of investors to sell winning positions too early while holding losing positions too long. The mechanism is loss aversion, the foundation of prospect theory, which Kahneman and Tversky established in 1979: losses feel roughly twice as painful as equivalent gains feel pleasurable. The result is a reference-point problem. Once a position is meaningfully profitable, the investor begins treating the unrealized gain as something that can be lost, rather than something already earned.
A client who bought Suncor at $62 and watches it trade near $92 does not see a 48% gain. They see $92 of potential that could return to $62. The framing has inverted. The original cost basis has become irrelevant to their emotional calculus. What drives them now is the gap between current price and peak price, not the gap between current price and purchase price.
Why the Oscillating War Premium Makes This Worse
The disposition effect operates most powerfully in volatile environments, and the current energy market is providing exactly that volatility. WTI traded above $100 in March. It touched $109 in late April. It fell sharply on ceasefire optimism in early May before recovering. This week, US military strikes on Iran on June 9 and 10, followed by Iranian retaliation against US bases in the Gulf region, pushed oil back toward $89 before settling near that level as markets absorbed the news that infrastructure targets had not been hit.
The oscillation matters psychologically because each peak becomes a new reference point. A client who watched WTI reach $109 and chose not to sell has now mentally booked a paper loss of $20 per barrel, even if their underlying equity position remains substantially profitable. Kahneman and Tversky identified this as loss aversion operating on dynamic reference points: the investor updates their anchor price upward with each new high, ratcheting up the pain of subsequent declines even when the absolute return remains large and positive.
The result is that the same client who might have held patiently through a 5% pullback from a stable base now experiences a 20% pullback from a peak as an acute loss, with the physiological stress response that loss aversion produces. They are not being irrational. They are being entirely human. The advisor's job is to interrupt the translation of that feeling into a portfolio decision.
The Disposition Effect Has a Specific Canadian Tax Consequence
In 2026, Canada's capital gains inclusion rate remains at 50% following Prime Minister Carney's cancellation of the proposed 66.67% increase in March 2025. That is good news. But it does not eliminate the tax consequence of a premature exit. A client who realizes a substantial gain in a non-registered account this year is still adding 50% of that gain to taxable income. For a high-income client, that can be a meaningful event, and it is entirely avoidable if the underlying thesis for holding the position remains intact.
The behavioral finance literature and the tax code both point in the same direction: the case for holding a profitable position through volatility is stronger than most clients intuitively believe. The disposition effect pushes them toward a decision that maximizes the probability of regret while minimizing the tax efficiency of the outcome.
TSX energy names have tracked the oscillating WTI price through the first half of 2026. Suncor posted Q1 net income of C$2.1 billion, up from C$1.7 billion a year earlier, with adjusted funds from operations rising 32% year-over-year. The fundamentals have improved alongside the commodity price. A client who exits now because WTI has retreated from its April peak is making a decision about price momentum, not about business quality. That distinction is one most clients cannot articulate without help.
WTI crude rose sharply from the February 28 conflict onset, reached a closing peak of $109.47 on May 5, then retreated as ceasefire optimism gave way to a grinding oscillation between escalation and de-escalation; the June 9-10 US strikes on Iran reversed a brief recovery and returned oil to the $88-89 range where it trades today.
What the Research Shows About Selling into Volatility
Brad Barber and Terrance Odean's 2000 study in the Journal of Finance, tracking 10,000 individual brokerage accounts over seven years, found that the stocks investors sold outperformed the stocks they retained by an average of 3.4 percentage points over the following year. The disposition effect is not merely a theoretical construct. It has a measurable cost.
In the specific context of commodity-driven volatility, the research is even more pointed. A client who sells an energy position because WTI has dropped from $109 to $89 is making a decision about the last six weeks, not about the next six months. The war that drove the original rally is not resolved. The Strait of Hormuz remains substantially closed. Global crude inventory draws have been running at a pace not seen since the 1980s, with US stockpiles including strategic reserves falling more than 70 million barrels over five weeks through early June, according to EIA data. The physical oil market is tight. The war premium oscillates, but it has not disappeared.
The advisor who can name the disposition effect, explain its mechanism, and connect it to the client's specific situation is providing something no news headline can replicate. They are giving the client a framework for understanding why the urge to sell feels rational and is not.