Some of you might be wondering why I stopped blogging. Just when I was about to write on my blog in March, I was sadden by the loss of our country’s most respectable and capable leader, our founding Father; Mr Lee Kuan Yew. I have no mood to write as I was mourning my lost. I am grateful for what Mr Lee had done for Singapore. I have seen how Singapore was transformed to become a First World Nation in a short span of 50 years. I am always thankful to be born and grow up in this small country.
I have lost a few love ones over the last two decades. And I knew I need time to get over my emotion. I believe every one of us will experience the pain of losing someone close in our lives time. We go through bereavement and it can last a very long time. However, we need to be rational and not to allow our lost to affect our future lives. We need to accept the lost and move on. It is more hurtful to hold on to your lost and keep thinking about the past. There is a danger of sinking into depression if you allow yourself to grieve for too long.
Similarly, this is applicable to the things that matter to us as well. Take for example our investments. Have you ever done a calculation on how much you have actually lost ever since you started investing? It is not surprise that all of us have lost money one way or the other. You can lose money even if you are not investing in anything. How? According to Rolf Dobelli, in his book, The Art of Thinking Clearly; he explained how many people fall into the sunk cost fallacy. He shared that his wife refused to leave the cinema in the middle of a dire movie just because she was reluctant to ‘throwing away $30’. To Rolf, the money is gone the moment he paid for the movie tickets. This is the sunk cost fallacy at work. ‘We have spent the $30 regardless of whether we stay or leave, so this factor should not play a role in our decision.’ He tried to explain to his wife but to avail. Eventually he gave in and continued to watch the film.
After reading his book, I realised that I have fallen into this sunk cost fallacy for a long time. Take for example my collection of books. I have many old books which I have collected over the years. Some of the books have turned yellow and many are collecting dust on the shelves. Some of them I have read a few times, while many only once. I kept them because I was reluctant to throw away ‘money’. In fact the sunk cost was incurred. It does not matter whether I keep the books or give it away. However, I decided to give away some of my old books to the Salvation Army. I was glad that I have less ‘junk’ on my shelves now.
In his book, Rolf Dobelli said:”The sunk cost fallacy is most dangerous when we have invested a lot of time, money, energy or love in something. This investment becomes a reason to carry on, even if we are dealing with a lost cause. The more we invest, the greater the sunk costs are, and the greater the urge to continue becomes.”
Does this sound familiar? Are you holding on to a troubled relationship just because you have invested a lot of time, energy or love in it? Do you have stocks that drop below cost price and yet you refuse to sell? Do you refuse to drop a marketing campaign even though it is not meeting anyone of your goal? You keep running the marketing campaign because you felt that it would be a waste of your effort, time and money if you were to quit.
I had made huge losses in the stock market during the Asian financial crisis; and yet refuse to sell just because I have invested a large sum of money in it. Guess what? Within a year, it dropped 30%. I refuse to sell because I have lost too much. In three years, it dropped by more than 95%. I have fallen into this ‘sunk cost fallacy’ big time. I learnt my lesson the hard way. My thinking was irrational. The stock acquisition price should play no role in making me keep the stock. What count is the stock’s future performance! Hence forth, I quit buying stock because I detest the feeling of anxiousness when the stock I bought kept losing money. Besides, I have learnt to be happy with whatever amount of money I have and take joy in simple pleasure every day. I like what Paul said in writing to the Philippians, “Not that I was ever in need, for I have learned how to get along happily whether I have much or little.”(Philippians 4:11)NLT
Nowadays, I count my blessing the moment I open my eyes every morning. I thank God that I am alive and healthy. What about you? Have you been counting your blessings? Do you hold on to your lost and refuse to let go of your painful past? Don’t harbour on your lost and blame ourselves for bad choices. Don’t feel condemn instead tell yourselves that you have gain wisdom through these experiences.
In conclusion, I would like to take an excerpt from Rolf Dobelli’s book, The Art of Thinking Clearly:
‘We’ve come this far…’ I’ve read so much of this book already…..’ ‘But I’ve spent two years doing this course…..’ If you recognise any of these thought patterns, it should that the sunk cost fallacy is at work in a corner of your brain. Of course, there may be good reasons to continue investing in something to finalise it. But beware of doing so for the wrong reasons, such as to justify non-recoverable investments. Rational decision-making requires you to forget about the costs incurred to date. No matter how much you have already invested, only your assessment of the future costs and benefits counts.’