Mike, at The Oblivious Investor had an interesting post on 'sunk costs.'

I joined in the commentary, and Mike has graciously given permission for me to use those comments here.

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For somebody with a long investment time line (30+ years) does it really matter if the investment is performing poorly right now? Wouldn’t I actually benefit by being able to purchase shares at a lower price?

Dave C

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But that is not relevant. You can buy those shares at today’s price – even if you had not bought any shares earlier. You are currently losing money on that original trade, and no matter what your time frame, that is not a good thing.

Wouldn’t you be better off if you had not bought those original shares and invested twice as much cash today?

The people who tell you that current price doesn’t matter don’t grasp the concept. They believe that if you are not exiting the position, it does not matter what the value of that investment is. Don’t fall for that.

Here’s what is true: There is nothing you can do about the fact that the price is lower. There is no need to shed tears over a trade that is losing money. Your decision is: Do you still want to own shares of this entity? If yes, continue to buy.

Obviously you have two conflicting hopes: a) You want your shares to be worth more in the future; b) You hope to buy lots of shares at what turns out to be a relatively low price.

You have no way of knowing what will be a low price in 30 years, so if you want to steadily invest, do so. But just because you are not cashing out today does not mean that you shouldn’t care about the price. After all, if the stock price doubles over a short period of time and you cannot figure out why that happened, then you may decide this investment is now too overvalued and get out.

It’s not that you are timing the market or taking a quick profit. It’s that you would rather own a different entity or different asset entirely – one that your research tells you is more fairly valued.