Ignore Sunk Costs at Your Peril
“There are several psychological forces that tend to keep people committed to a course of action long beyond the point when they should rationally quit. The first is the sunk cost fallacy. This can be seen in the actions of the stock market investor who has watched share prices of a company plummet from $60 to $20. At this point, instead of objectively assessing the potential of the stock, the investor may hold onto this stock–or buy more shares–in hopes of regaining these “sunk costs”. But if the company is collapsing, there will just be more losses.”
Yoram Wind & Colin Crook with Robert Gunther
The Power of Impossible Thinking
“Sunk costs” are also discussed on p. 185-6 of Trend Following.
