Beware of "get-even-itis"
Do you suffer from it?
Most people do, but they don't even know it.
Get-even-itis is one of the most common maladies to plague investors and is a leading cause of terminally bad portfoflio performance. Get-even-itis is the determination to hold onto a bad investment until you get even. Though it normally lays dormant, it becomes active when we become aware that something is terribly wrong in our portfolio. If you haven't experienced it already, you almost certainly will.
Get-even-itis stems from an unwillingness to admit you were wrong. It is almost always based on wishful thinking and it blinds you to reality. Who says your bad trade will get back to even? And even if it eventually does, why should future opportunities be held captive to bad past decisions?
The cure for this malady comes from realizing that taking losses is part of investing. With investments, we play a game of probability. Through careful research and proper portfolio structure we can stack the odds in our favor, but we know we face risk.
In today's market, there are opportunities all around us and it would be a shame to miss them because you are suffering from get-even-itis. If your portfolio was poorly structured before--overly concentrated, too risky, not liquid enough, etc.--don't let that stop you from making the needed corrections now.
One of the first lessons I learned in economics is that "sunk costs are sunk." Think of the bad investment as a sunk cost, as tuition paid on becoming a better investor.