Secret 86THE SECRET OF SUNK COST

К оглавлению1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 
17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 
34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 
51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 
68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 
102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 
119 120 121 122 123 124 125 126 127 128 

As you now know, one of the most critical attributes of a

successful option trader is his ability to take a loss. One major

reason investors have trouble taking a loss is sunk cost. They reflect

on how much they paid for that stock, futures or option, or

how much they will lose.

What you paid for that stock or option should be considered

a sunk cost and must be ignored in making an investment decision.

The question becomes whether the stock or option is a good

investment at today’s price, ignoring what you paid previously.

Unfortunately, too many investors make this mistake of

sunk cost by making their decisions based on the price they paid

for a stock, futures or options when they should be asking themselves

the question, “Would I buy at today’s price?” Don’t be one

of those unfortunate investors. If you realistically would buy at

today’s price, then hang on to the position. If not, sell the

position.

Here, I don’t understand when an analyst gives a HOLD rating

on a stock. Either a stock is worth buying or else you should

sell it. Having a HOLD on a stock or futures says that you must

hold on because you paid a higher price. That is bad decisionmaking,

for you are considering your sunk cost.

Most people in every-day-life situations consider sunk costs

when they should not. For example, let’s say you have an old car

or lemon and keep pouring money into fixing that car. Your excuse

is that you have already invested too much money in the car

to sell it; however, you will never get your money back, and furthermore,

the more you pour in, the more you lose.

As a result, the refrain is that you should never consider

what you have already invested; that is sunk cost, and you always

ignore sunk cost. A good poker player never considers how much

he has already put in the pot; he considers his chances of winning,

not his investment in the pot. He knows when to fold his

cards.

As you now know, one of the most critical attributes of a

successful option trader is his ability to take a loss. One major

reason investors have trouble taking a loss is sunk cost. They reflect

on how much they paid for that stock, futures or option, or

how much they will lose.

What you paid for that stock or option should be considered

a sunk cost and must be ignored in making an investment decision.

The question becomes whether the stock or option is a good

investment at today’s price, ignoring what you paid previously.

Unfortunately, too many investors make this mistake of

sunk cost by making their decisions based on the price they paid

for a stock, futures or options when they should be asking themselves

the question, “Would I buy at today’s price?” Don’t be one

of those unfortunate investors. If you realistically would buy at

today’s price, then hang on to the position. If not, sell the

position.

Here, I don’t understand when an analyst gives a HOLD rating

on a stock. Either a stock is worth buying or else you should

sell it. Having a HOLD on a stock or futures says that you must

hold on because you paid a higher price. That is bad decisionmaking,

for you are considering your sunk cost.

Most people in every-day-life situations consider sunk costs

when they should not. For example, let’s say you have an old car

or lemon and keep pouring money into fixing that car. Your excuse

is that you have already invested too much money in the car

to sell it; however, you will never get your money back, and furthermore,

the more you pour in, the more you lose.

As a result, the refrain is that you should never consider

what you have already invested; that is sunk cost, and you always

ignore sunk cost. A good poker player never considers how much

he has already put in the pot; he considers his chances of winning,

not his investment in the pot. He knows when to fold his

cards.