Would You Buy it Today?

I once had a finance professor who framed up buy/sell investment decision-making in a unique way. I’ve heard this same perspective many times since, but I remember how much it made me think back to when I was a 20-year-old kid. If you’re sitting on an investment that you don’t know whether you should sell or not, simply ask yourself, “Would I buy it today at this price?” If the answer to the question is yes, then hold. If the answer is no, then sell. Why? Because not making a decision is still a decision. Every time you choose not to sell, you’re choosing to buy at today’s price.

While this has proven to be sage investment advice, I think it’s even more powerful when brought out of the investment space and into the broader context of life. Many of our habits, relationships, jobs, expenses, possessions, and countless other nuances of life, are the residual of past decisions. When the decision was made (let’s call it the buy), it might have been the ideal choice for us. Fast forward months, years, or decades, however, this aspect of our life might not be nearly as ideal as it once was. Therein lies the choice. Would we choose to do this thing today if we weren’t already doing it? If the answer is yes, we should keep doing it (hold). If the answer is no, perhaps it’s time to stop (sell).

I’ve been auditing various aspects of my life, work, and ministry lately, and it’s humbling to recognize how many no’s I’m getting when I ask myself that question. It’s a humbling question, but a worthwhile endeavor. You should give it a shot!

The Psychological Impact of Sunk Costs

I thought you deserve an update on my NBA play-in game ticket debacle. After literally everything working against me, I had two tickets to last night’s 8-seed play-in game (which cost a total of $550)…..and nobody to go with me. As the week played out, I continually debated what to do about the situation.

So here’s where I was a few days ago. Due to the trainwreck that is the Minnesota Timberwolves organization, ticket prices plummeted for an event they should have increased for. That will happen when one of your best players punches another player, and a different player punches a wall and breaks his hand. As a result, I had two tickets worth a total of $250….down $300 from when I originally purchased them. Whenever I discussed this situation with people, their collective reaction was something along the lines of “Obviously you have to go, otherwise you lost $300.”

This is a very typical way of looking at the situation, but not the right way. This is where the idea of sunk costs comes into play. There’s no way around it, I already spent $550 on these tickets. There’s no undoing that or wishing it away. That’s referred to as a sunk cost….the price that has already been paid for something. What I originally paid for the tickets is absolutely irrelevant to the decision in front of me. It happened and the money is already gone from my bank account.

I had two primary choices in front of me. I could sell the tickets for $250, or I could keep the tickets, add $50 of fuel costs to the equation, and road trip to the game. Put in those terms, going to the game would cost me $300 and not going to the game would give me $300. This decision has to be made without regard for the original $550 of sunk costs. Do I want to stay home and have $300 or pay $300 to go to the game? It’s a much different decision when we look at it that way.

Let’s be honest, it’s hard to think this way. The moment I decide to sell these tickets, I solidify the financial and emotional loss of my mistake. However, what if I didn’t want to go to the game now? Stubbornly thinking with my pride would have cost me $300 for an experience I didn’t want. This is the same psychological warfare that causes us to stay in toxic relationships, hold onto bad financial investments, and stay in crappy jobs. We’ve put so much into them (time, money, energy, love, etc.) and we don’t want to realize the loss. However, we need to disregard the sunk costs. Instead, we need to ask ourselves what the cost/upside is from today. If we’re in a terrible relationship, for example, we can choose to either a) leave and move on to a better life (recognizing the past 6 weeks, 6 months, or 6 years may have been garbage), or b) linger in misery, hoping to rectify a bad situation and justify the misery experienced the past 6 weeks, 6 months, or 6 years. The sunk costs often mess with us, resulting in us inadvertently causing further harm/pain. I know I’ve fallen for that trap before!

So what did I do about the tickets? After much consideration, I decided $300 is still a worthwhile price to pay for a memorable experience and to check off a bucket list item. My buddy TJ even came with me! It was fun gifting him a ticket and sharing that experience together. Considering we didn’t get home until the middle of the night, additional thoughts/reflections on the experience will have to wait for another day. Have a great Saturday!