Mind Matters

I have an embarrassing confession to make.

I lost just over $17,000 last year because of one mindset mistake.

The kicker is that I didn’t even realize it was in-play. 

It’s called the sunk-cost fallacy. And the problem with the sunk-cost fallacy is that even when you’re aware that it exists, it can cost you. The sunk-cost fallacy is this:

You continue to invest in something, regardless of whether it’s time, money, or resources simply because you have already investing in that thing. Your prior investment becomes a factor in continuing with it.

This cost me in two places.

The first was in the stock market. I purchased stock in a company (that will remain nameless because it makes me angry to type it) based on a “gut” instinct and some analyst reviews. Sure, that should have been my first red-flag. But sometimes I’m slow to get the point. So not long after I buy, it drops. Naturally, I buy more because it’s at a discount right?

Wrong, it’s just not a great company.

And I didn’t do research I should have.

I eventually cut losses and sell, but the damage was done.

I did the same thing with non-fungible tokens (NFT’s). The exact same scenario where I bought, the priced dropped, and I then bought more. These eventually became completely worthless.

Before you laugh too hard, I did have one win in the NFT world that made up for all the losses and put me well into the green, but that’s a story for another newsletter.

Anyway, the lesson is this:

You investing resources in something is never a reason to keep doing it. When you have new information, you might need to cut losses. Don’t keep holding on like I did until it all crashes and burns.

The remedy I use:

I look at every investment of my time, money, and energy as if it were a friends investment and that friend is asking me for advice. That’s lets me remain objective. It’s why we can often give our friends better advice than we can give ourselves. That’s where we need to land, an objective review of the best information we have.

Oh and the other lesson…never, ever, buy NFT’s unless you love digital monkey pictures or you have money you want to give away.

Until next week,

Joshua