A bag holder is an informal term used to refer to an investor who holds his position in a security for an extended period of time. Usually, the bag holder refuses to let go of his position in the security with a firm belief that he accurately predicts the direction of the price of the security despite apparent signs of the opposite.
Consider an investor buying 10 shares of a start-up fintech firm. Though the share price goes up during the initial public offering, it rapidly dwindles when analysts predicted a decline after finding some drawbacks in the firm’s operational system. Soon enough, profit figures decline – an indication that the firm is in a slump. As a result, the stock price continued to drop. An investor who decides to keep his holdings in the firm despite a profit downturn is considered a bag holder.