Author Topic: Sunk Cost questions for the stock market  (Read 1408 times)

darknight

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Sunk Cost questions for the stock market
« on: April 27, 2022, 08:30:21 PM »
Been reading other threads today about sunk costs and market losses. I've found myself in a bit of a pickle and looking for advice from the financial sages.

Here it is - 2020 started playing in the stock market. 2020 and 2021 turned out net positive! 2021 started putting money into tech company. Shares slid, bought some more to lower my average. Eeek. It's been a downward ride all year, and my 25k has turned into 10k. I've spent a lot of time reading MMM forums about VTI and Vangaurd. If I could do it all over, I'd put that 25k into a mutual fund and set n' forget.
I stupidly did not, and have found myself here.

After reading other similar threads and the recommended articles about sunken costs, I'm not sure if the best option is to "eat the loss" and KEEP my 10k to put into mutual funds (sell at current market value), or "wait for the market to come up because-I-can't-afford-to-lose-that-much"..
« Last Edit: April 27, 2022, 08:31:57 PM by darknight »

innkeeper77

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Re: Sunk Cost questions for the stock market
« Reply #1 on: April 27, 2022, 10:02:17 PM »
Would you buy that company today at the current price? If so, leave it there. If you would NOT buy it today, there is a strong argument for re balancing.

If you are lucky here, you will have it all in a taxable account, could sell, buy $10k of VTI, and claim a $15k loss on your taxes which may take a bit of the sting away! If it's in a retirement account no such luck, but $10k into VTI right now will be a good idea for the future.

darknight

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Re: Sunk Cost questions for the stock market
« Reply #2 on: April 27, 2022, 10:08:14 PM »
Would you buy that company today at the current price? If so, leave it there. If you would NOT buy it today, there is a strong argument for re balancing.

If you are lucky here, you will have it all in a taxable account, could sell, buy $10k of VTI, and claim a $15k loss on your taxes which may take a bit of the sting away! If it's in a retirement account no such luck, but $10k into VTI right now will be a good idea for the future.

This is the kind of question I didn't know I wanted to be asked.. That is a great question and I'm going to think over it tonight.

It's all in a taxable account. Again, new at the investing stuff, dumping it into VTI via Vanguard Mutual fund or VTI stock form - same, correct? Another note, my 2021 earnings were nearly 14k of the total 25k into this stock. I'm "net" 11k (roughly) into this current stock. I took the 11k plus the 2021 earnings and put it in there for the total of 25k. Also, that 15k break would be beneficial but painful. I'm self employed and with income tax I pay "double" what a salaried position would be. Thinking about filing LLC in another state with lower income taxes. I had a professor talk about that years ago and haven't forgotten it. Might be time to consider it.
« Last Edit: April 27, 2022, 10:10:39 PM by darknight »

SweatingInAR

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Re: Sunk Cost questions for the stock market
« Reply #3 on: April 28, 2022, 09:03:26 AM »
Would you buy that company today at the current price? If so, leave it there. If you would NOT buy it today, there is a strong argument for re balancing.

Perfection.

If you want some more to read, check out: https://www.bogleheads.org/wiki/Behavioral_pitfalls

I like to re-read those pitfalls every year or so to make sure I am not falling into any suboptimal habits. I think that "Anchoring" and "Mental Accounting" are the most common. I run into so many craigslist sellers that are "anchoring" the value of their dishwasher/atv/bicycle at the dollar amount they paid instead of the market value.
« Last Edit: April 28, 2022, 09:04:58 AM by SweatingInFL »

cool7hand

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Re: Sunk Cost questions for the stock market
« Reply #4 on: April 28, 2022, 11:35:39 AM »
Would you buy that company today at the current price? If so, leave it there. If you would NOT buy it today, there is a strong argument for re balancing.


+1 on using this heuristic

dhc

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Re: Sunk Cost questions for the stock market
« Reply #5 on: April 28, 2022, 05:27:52 PM »
It may help if rather than thinking of this as a 15k loss, you think of it as a 15k lesson in why not to invest in single stocks. Over the long term, this may actually be much better than having a big gain right away, which could trick you into thinking you had some special ability to beat the market.

TheAnonOne

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Re: Sunk Cost questions for the stock market
« Reply #6 on: April 29, 2022, 12:21:23 PM »
Been reading other threads today about sunk costs and market losses. I've found myself in a bit of a pickle and looking for advice from the financial sages.

Here it is - 2020 started playing in the stock market. 2020 and 2021 turned out net positive! 2021 started putting money into tech company. Shares slid, bought some more to lower my average. Eeek. It's been a downward ride all year, and my 25k has turned into 10k. I've spent a lot of time reading MMM forums about VTI and Vangaurd. If I could do it all over, I'd put that 25k into a mutual fund and set n' forget.
I stupidly did not, and have found myself here.

After reading other similar threads and the recommended articles about sunken costs, I'm not sure if the best option is to "eat the loss" and KEEP my 10k to put into mutual funds (sell at current market value), or "wait for the market to come up because-I-can't-afford-to-lose-that-much"..

First off-
You got off cheap. I've had some folks I know personally make and lose 250k+ over the course of a single year.

Playing in the single stock world is fun, but yes, please try to have a 'baseline' portfolio first. If you have a massive pile in VTI, dumping 10k into a stock is nothing.

Depending on how much you have in there, I am inclined to just let-it-ride. Money has no affect on my mental health though.

Rdy2Fire

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Re: Sunk Cost questions for the stock market
« Reply #7 on: May 01, 2022, 06:17:11 AM »
Would you buy that company today at the current price? If so, leave it there. If you would NOT buy it today, there is a strong argument for re balancing.


+1 on using this heuristic

+1 but I'd add if you have 10K that you can tie up for a little over a month then put it in your account, buy the 10K worth of all those stocks you own, and want to keep, doubling up, after 31 days sell half and take the tax loss. Assuming of cause you would benefit, tax wise, against other gains etc from taking the loss

 

Wow, a phone plan for fifteen bucks!