How Far Would You Go For Money?

/

What a question to start this Monday off, huh? I’m just getting started this week. “Would You Kill For Money?” – This is the question that I was left to ponder after I watched the movie Money Monster this past weekend. If you’re a movie lover like me, I hate it when people spill the beans, so I won’t.  However, I believe you’ll come to a similar pondering after watching the trailer. But, I have to address the fundamental premise of the movie – people will go to great lengths to earn some money. The movie provides many other “ah ha” moments, a tutorial on algorithmic trading, and urges you not to believe the stock tips you hear on TV.

Desperation can cause the best of us to go to great measures in order to make a return on an investment.  I’ve been there before and let me tell you – you start rationalizing poor decisions and trying to recoup your costs. The economist in me calls this “sunk cost fallacy,” or the tendency to let the costs you already incurred negatively influence your behavior.

What I learned, however, is that if an investment goes bad, one must be willing to walk away and take the loss. I did this last year with my J.C. Penney investment (the stock performed so poorly). I also did this a few years ago when I closed on my business - Smarteys.

What Should You Do When You’re Losing? 

No one likes to lose money! Trust me, I hate it. But, it happens to us all. The important thing to do is to have a framework to evaluate your investment.

So, here are a few questions you should ask yourself to determine if you should walk away from an investment that is losing money:

  1. Will I expect to get a higher return by taking my money out of my current investment and putting it into a new investment?
  2. Has the fundamental premise of why I invested in the first place changed?
  3. Have I already surpassed my loss stop point? [Note: A smart thing to do is to determine your loss point beforeyou make the investment]
  4. What are the tax implications of taking a loss on my investment?
  5. Am I willing to put more money into a down investment? [Note: If the answer is “No,” then take a look back at #1].

Let me know what you think of these questions as it relates to an investment you’re starting to think through. There’s no shame in sharing – we can help each other find real answers and solutions. Leave a comment below and let me know your thoughts.

Have a wonderful day, and DON’T kill anyone over money, even when things get bad.