The Spoiled Milk Portfolio: Why You Can’t Let Go
June 18, 2025
Ever stood in front of your fridge, staring at week-old leftovers you know you’ll never eat, but can’t bring yourself to throw away? That’s exactly what you’re doing with that underperforming stock you’ve held for three years, down 60% and still dropping.
Welcome to the sunk cost fallacy—the irrational tendency to continue a bad investment simply because you’ve already invested time, money, or effort into it. Investors hate admitting mistakes more than they hate losing money, which explains why portfolios worldwide are littered with financial corpses that should have been buried years ago.
The psychology is brutally simple: we irrationally chase sunk costs, throwing good money after bad, because our brains confuse past investments with future potential. That $10,000 you lost? It’s gone. Forever. But your brain insists it’s somehow still “in play” if you just hold on a little longer.
Why do people stick with losing investments (sunk cost fallacy)? Because admitting failure feels worse than actual failure. Because “selling at a loss” seems more real than watching your account balance slowly bleed out. Because hope is a hell of a drug, and “it might come back” is the investor’s favorite bedtime story.
The Meta Meltdown: A $800 Billion Case Study in Denial
October 2021: Facebook rebrands to Meta, stock hits $384. Mark Zuckerberg promises the metaverse will revolutionize humanity. Investors pile in, convinced they’re early to the next internet.
Fast forward: Meta crashes to $88 in November 2022. Investors who bought at the peak lost 77%, yet millions refused to sell. Why? Classic sunk cost fallacy—they’d “invested too much to quit now.” The more they lost, the more committed they became to the losing position.
The psychological trap was perfect: Each earnings report showing billions burned on virtual reality made investors more desperate to recoup losses. They weren’t investing in Meta’s future—they were trying to justify their past. Past losses became future strategy.
Crypto’s Sunk Cost Graveyard
The crypto collapse of 2022 created the largest sunk cost fallacy experiment in financial history. Bitcoin falls from $69,000 to $15,000. Ethereum crashes 80%. Luna goes to literal zero.
Yet crypto forums filled with investors doubling down, tripling down, mortgaging houses to “average down.” Why do people stick with losing investments (sunk cost fallacy)? Because when you’re down 80%, your brain whispers: “What’s another 20%? You’ve already lost everything.”
The deeper the hole, the harder they dug. Investors weren’t analyzing blockchain fundamentals or adoption curves—they were desperately trying to validate their original decision. Each additional investment wasn’t about future returns; it was about justifying past mistakes.
The Neuroscience of Financial Stockholm Syndrome
Your brain treats financial losses like physical wounds. The anterior insula—the same region that processes physical pain—lights up when you lose money. Selling at a loss literally hurts, which explains why investors develop Stockholm syndrome with their worst positions.
Loss aversion amplifies the sunk cost fallacy. Losses feel 2.5x more painful than equivalent gains feel pleasurable, creating an asymmetric psychological prison. You’ll hold a losing position forever to avoid the pain of realizing the loss, even as unrealized losses create chronic financial stress.
Confirmation bias seals the trap. Once committed to a losing investment, investors seek information supporting their position while ignoring negative signals. Every minor uptick becomes “proof” of an imminent turnaround. Every further decline is just “temporary volatility.”
The SPAC Massacre: When Hope Becomes Delusion
2021’s SPAC bubble perfectly illustrated mass sunk cost psychology. Hundreds of SPACs promised to find the “next Tesla”, raising $160 billion from retail investors. When the bubble burst, 90% traded below their $10 IPO price.
But investors wouldn’t sell. Forums filled with desperate rationalizations: “The merger will fix everything.” “Management has skin in the game.” “It’s too cheap to fail.” Classic sunk cost thinking—using past investment as justification for future hope.
The result? Average SPAC investor lost 60% by 2023. Those who sold early and took 20% losses looked like geniuses compared to those who rode hope all the way to zero. The sunk cost fallacy transformed manageable losses into portfolio devastation.
Meme Stock Syndrome: When Community Becomes Cult
GameStop, AMC, Bed Bath & Beyond—meme stocks created a new variant of sunk cost fallacy: social sunk costs. Investors didn’t just lose money; they lost face if they sold. Reddit communities transformed financial positions into identity markers.
“Diamond hands” wasn’t investment strategy—it was sunk cost fallacy with a marketing department. Investors who bought GME at $400 couldn’t sell at $300, $200, or even $40 because they’d invested more than money. They’d invested their online reputation, their community standing, their self-image as “apes together strong.”
The social pressure to hold losing positions created a feedback loop: the bigger the loss, the stronger the community bonds, the harder to sell. Sunk cost fallacy went viral, creating millions of investors psychologically unable to cut losses.
The Professional’s Secret: Ruthless Position Management
Professional traders have one superpower retail investors lack: the ability to kill losing positions without emotion. They understand a fundamental truth—every day you hold a position is a new decision to buy at current prices.
Ask yourself: If you had cash instead of that losing position, would you buy it today at current prices? If no, you’re only holding due to sunk cost fallacy. The market doesn’t care what you paid. It only cares about future value.
This is why professionals use stop losses religiously. Not because they’re always right about exit points, but because mechanical rules override psychological biases. When emotion says “hold and hope,” the stop loss says “cut and move on.”
The Tax Loss Harvesting Hack
Here’s a contrarian secret: losing positions are valuable—but only if you actually sell them. Tax loss harvesting transforms sunk cost fallacy into tax alpha. Sell losers, book the tax deduction, reinvest in better opportunities.
Yet investors refuse this free money because realizing losses feels like admitting defeat. They’d rather lose 100% slowly than book a 30% loss that reduces their tax bill. The sunk cost fallacy literally costs them twice—once in opportunity cost, once in tax inefficiency.
Breaking Free: The 30-Day Challenge
Want to break the sunk cost spell? Try this: Sell every position down more than 20%. Put the cash in a money market fund for 30 days. Then decide—with fresh eyes—whether to rebuy those positions.
90% of the time, you won’t. The 30-day break severs the psychological attachment to sunk costs. You’ll see those investments for what they are—not what you hoped they’d become. The clarity is worth more than any potential rebound.
The Opportunity Cost Apocalypse
The real tragedy of sunk cost fallacy isn’t the money lost—it’s the money not made. While you’re nursing that -60% position back to breakeven, the market’s best performers are printing money without you.
Every dollar trapped in a losing position due to sunk cost fallacy is a dollar not invested in tomorrow’s winners. The S&P 500 averages 10% annually, but you’re waiting for your zombie stock to resurrect. The math is devastating over time.
Your Psychological Exit Strategy
Stop asking “How much am I down?” Start asking “What’s the best use of this capital today?” The first question anchors you to sunk costs. The second focuses on future opportunity.
Create “position autopsy” rules: When any investment drops 25%, write a one-page analysis of what went wrong. Not to torture yourself—but to separate analytical failure from sunk cost psychology. Often, you’ll find the investment thesis is already broken.
Use the “stranger test”: If a stranger offered to buy your losing position at current market price, would you sell? If yes, then sell it on the open market. The stranger doesn’t exist—but the mental framework breaks sunk cost thinking.
The Sharp Truth: Cut the Cord
Why do people stick with losing investments (sunk cost fallacy)? Because they confuse past decisions with future outcomes. Because they’d rather lose everything slowly than admit error quickly. Because hope feels better than action, even when hope is mathematically delusional.
The market rewards ruthlessness, not loyalty. It pays those who cut losses quickly and compound winners aggressively. Every moment you hold a losing position due to sunk costs is a moment you’re not capitalizing on actual opportunities.
Your dead investments are already gone—stop throwing good money after bad ghosts. Kill your losers. Feed your winners. Let someone else baghold while you build wealth.
The most expensive investment isn’t the one that goes to zero—it’s the one you can’t let go.
