Investing term
What is Sunk-cost?
Letting money you've already spent or lost dictate your next decision.
The sunk-cost fallacy is letting money or effort you've already spent — and can't recover — dictate your next decision. Because we hate to feel that past spending was 'wasted', we keep pouring in resources to justify it, when the past cost is gone regardless of what we do next.
In investing it shows up as holding a losing position because of how much you've already lost, rather than judging it fresh on its future prospects — 'I can't sell now, I'm down so much.' But the amount you've lost is a sunk cost; it doesn't change whether the investment is a good hold from today. The only rational question is whether the investment is worth owning from here, on its own merits, regardless of what it cost you or how much it's already fallen.
Sunk-cost thinking holds a losing investment because of how much you've already lost — but that money is gone whether you hold or sell. The only rational question is whether it's worth owning from here.
For example
You hold a sinking stock because you're 'in too deep to sell now' — but the money already lost is gone whether you hold or sell; only the future prospects should decide.
Learn it by doing
That's Sunk-cost in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 12, Investor Psychology: FOMO, Panic & Biases).
Try the free lesson →Why it matters to you
Sunk-cost thinking matters because it keeps money trapped in bad investments to honour past losses that can't be undone. Every day you hold something only because of what it already cost you is a day that capital isn't in a better use. Learning to treat past losses as irrelevant to the forward decision — to ask only 'is this worth holding from here?' — frees you to reallocate to better opportunities instead of defending a lost cause.
⚠ 'I'm in too deep to sell now'
The feeling of being 'in too deep' after a big loss is the sunk-cost fallacy at work: the loss is already incurred whether you hold or sell, so it shouldn't factor into the decision. Holding a poor investment to avoid 'wasting' what you've already lost just compounds the mistake. Judge it fresh — worth owning from here, or not?