Sunk Cost (fallacy) and Steve Cohen
I work with a lot of money. Money comes in, money goes out. Upwards of $1.5m a month. It's a rapid fire cash flow environment, where solid and up-to-date book-keeping and payable processes guides the way. Gotta know where you stand at all times.
But even though I'm a personal financial literacy advocate, and fanatic, I still can step away from myself and watch the same emotional struggles about the best use of money, and none more dangerous than the Sunk Cost experience. Sunk costs are defined as money and time and energy expended on a project, initiative, idea or business - money you have in it. It can't be changed. You already spent it. Sunk Cost Fallacy revolves around the human brain reluctance to pivot away from an initiative that you have measurable time and money invested- chasing the dragon some more in hopes of recouping the loss, further aggravating the loss. Happens with stocks when they decline and you know you holding a loser - the disinclination to sell it is emotional, not mathematical. The hope is that some variable or factor will change that will allow you to recoup and perhaps even gain some ROI.
Problem is, many times you just don't know. Success or momentum could be just around the corner. Perseverance is the mantra of any endeavor, especially entrepreneurial, and I guess that's what separates the ultimate winners and losers in the game of business, especially small business where resources are always scarce - those that can clearly identify losing paths that being traveled, and pivot away, quickly, stemming the bleeding at the first opportunity, instead of chasing the loss.
One thing the pandemic did was allow many businesses to make tough financial decisions under the cover of the pandemic, without judgment, with the ability to blame someone/something other than themselves. Culling employees, shutting divisions, selling off poorly performing assets. I bought a $5m project for $200,000 that the owners had held for 15 years hoping something in their luck would change. I still credit the pandemic with two things - increased skill of leadership since it brought challenges never seen before that needed action now, and the ability of businesses to streamline their operations with no repercussions from stockholders or community. Tough decisions that wouldn't fly normally became commonplace, and businesses became more efficient, lean and strategic and most importantly, focused. The pandemic forced a focus for survival, and most benefited from the concentrated and concerted return/attention to the basics. The counterintuitive thing is the NYC money manager who took a $4m haircut when he sold me the project for $200k never looked back, strengthened his focus, and is stronger than ever. Chasing losers takes a lot of energy and resources.
I had to confront a personal (business) sunk cost situation recently, with a 6 figure partner to dance with. But in the end, I beat back the emotions, looked at as a math and business problem, and discarded the problem with a stroke of my pen.
Then pulled a hedge-fund guru Steve Cohen, where after he paid a few billion dollars to the US Gov't to settle his problems, just to flex, he went on a spending spree showing up in headlines of art auctions and then ultimately bought the Mets.
I'm doing a little of that, with the pursuit of a new 30 acre subdivision in Kerhonkson, a long vacation in Costa Rica, and the addition of a new multi-play room and new garage at my abode. The new play room sports a ping pong table, electronic dart board, and a killer home theater with a sound system that blows the doors off.
And some shelves to show off my 85 piece typewriter collection.
Got one closing done yesterday and another one set for Monday.
I wonder if any of these lines of homes will ever reach 100. Time is running out for this generation.