The theory of a bird in the hand comes from the proverb "Two birds in the bush are worth a bird in the hand". Gordon, its representative, believes that investors have a natural aversion to risk. Faced with the capital gains brought by dividend income and retained earnings, they are more willing to choose the former, because they think dividends are real gains, and it is uncertain whether surplus reinvestment can get more gains.

Visual example:

Suppose a stock fund A can increase its value by 20% every year, and at the same time take out its 10% dividend.

Xiao Zhang and Xiao Li bought the fund A 1 10,000 at the same time. Xiao Zhang has long been optimistic about the equity market. He chose to reinvest in dividends. After A 100 years, the net account value is 6190,000 according to compound interest calculation. While Xiao Li pays attention to the immediate real income and chooses to withdraw all the dividends, then the net account value after 10 years plus the money withdrawn in these years is only 4190,000. From the example, we can see that the money withdrawn halfway is not only the dividend of 10%, but also the potential to make more money with these dividends. The bird theory in hand is to describe Xiao Li's short-sighted investment psychology and behavior.