The framework that gets you out
The next rupee is a forward decision. The bias treats it as a loyalty payment.
Three questions that flip the read from "I have already lost" to "would I buy this today". The right answer is rarely about the position. It is about which trade you are actually in.
Sunk cost fallacy
Arkes Blumer 1985 Organisational Behavior and Human Decision Processes
Loss aversion
Kahneman Tversky 1979 Econometrica prospect theory
Escalation of commitment
Staw 1976 knee deep in the big muddy
01
Run the zero base test. If today's cash were sitting in your account and this stock at this price were a fresh recommendation, would you buy it. If no, the answer was no a year ago too. The buy price has no vote. The market is offering you a price right now. The only relevant question is whether you want to be a buyer at that price.
02
Read the next rupee forward. Sunk cost is a sentence about yesterday. Tomorrow's allocation does not owe yesterday a recovery. Every additional day of holding is a fresh choice to hold, financed by today's opportunity cost. Treat the decision the way you would treat a new purchase from a friend pitching the same stock today.
03
Cut and redeploy does not have to win. The bar is opportunity cost, not glory. If the redeployed rupees compound at the index, they outrun a hold-flat in three years and a hold-decay in two. You do not need to time the bottom. You need to stop paying the carry on a thesis that no longer earns it.
The line
The first cut is the cheapest. Every additional day of holding is a fresh choice to hold, dressed up as the original purchase. The brain reads the loss as a story about the past. The math reads it as a decision about the next year. The portfolio that compounds is the one where every line item earns the right to be held today.
The buy price is a memory. The next rupee is the decision.
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