Tackle Today: Sunk Cost Fallacy
May 5, 2020
≈ Don’t fall into this classic trap ≈
A trader or investor can fall into the sunk cost fallacy when they decide to stay in losing positions based on money committed, time invested, or resources allocated. Essentially, it occurs when you hold onto a losing position without the logic behind why you invested simply because you do not want to admit your mistake and hold your losing investment stubbornly.
This happens with all kinds of things. If you overeat your meal just because you have already paid for it past the point that you’re full, you are falling victim to this mindset. If you attend a concert that you have paid for a ticket for in advance, even though circumstances have changed and you don’t really want to go, you are falling victim to it. If you hold onto an investment that is losing, just to try to get back to even, you are also falling victim to it.
Over the weekend, one of the greatest investors of all time, Warren Buffet, sold his positions in airlines stocks while they are currently at a low point. They are losing him money, but instead of holding onto bad investments (his perception) he decided to dump them and move on. What can we learn from this? If the thesis behind why you got into something has factually changed, you should move on regardless of whether you are up, break even or down at the time. Trade with the facts. Invest with the facts.
Chart of the Day
JETS
Here is a chart for the ETF JETS which tracks the major airlines.
Video of the Day
Trading Justice Interview: Guy Cohen
In this episode, we welcome Guy Cohen back to the podcast. Guy is an author, trader, technician and market analyst who brings great insight into the current conditions across the markets.
Today’s line up
Traders Lounge 11 AM EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
The Coaches Show 8:30 PM EST
This is our weekly MasterMind group. Join the coaches tonight, 8:30pm EST to discuss the markets and help you prepare for the week.
Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.
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