The Story of Sunk Cost Fallacy and Stock Markets

Sunk Cost is one of the most powerful concepts that drives the investor sentiment, hence the market. I got introduced to this amazing concept when I was reading a book namely “Stocks to Riches: Insights on Investor Behaviour” a few days back.

In economics, a sunk cost is any past cost that has already been paid and cannot be recovered.

We tend to make rational (read, irrational) decisions based on the future value of objects, investments, and experiences but it is tainted by the emotional investments you accumulate. It’s called Sunk Cost Fallacy. Let’s try to give an example on how amateur traders gets lured into ‘greed and fear’ and smart traders uses it against them.

Let’s try to give an example on how amateur traders gets lured into ‘greed and fear’ and smart traders uses it against them.

Remember the day of surgical strike on Pakistan?

Fear rallied the bears following heavy shopping of DIIs and FIIs. This index has a huge factor determining Portfolio Beta which I use to balance my portfolio.

On July 6, 2016, Pokemon Go was released and Nintendo shares spiked like a rocket.

Nintendo’s market value rose by $7.5 billion on July 11th, just after Pokemon Go went public and became an instant, massive hit across…