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The 52-Week Low Formula: A Contrarian Strategy that Lowers Risk, Beats the Market, and Overcomes Human Emotion
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The 52-Week Low Formula: A Contrarian Strategy that Lowers Risk, Beats the Market, and Overcomes Human Emotion

by Luke L. Wiley
April 2014
Intermediate to advanced content levelIntermediate to advanced
240 pages
4h 49m
English
Wiley
Content preview from The 52-Week Low Formula: A Contrarian Strategy that Lowers Risk, Beats the Market, and Overcomes Human Emotion

Chapter 10The Sunk-Cost Bias and Pride and Regret

Jacobian Inverse: If I have decided to build a plane and I’ve sunk $100 million into a $2 billion project, come hell or high water I’m going to build this plane, no matter what. Even if my closest competitor beats me to the market, charges less, and builds a better plane, I will still see it through; after all, I’ve already spent $100 million on it. I cannot be willing to look at my investment position with a fresh pair of eyes; rather, I will maintain the same course of action no matter what.

If I want to make good investment decisions, I need to be objective and dispassionate. In order to ensure I don’t do that, I should make decisions based on emotional attachment, pride, and stubbornness. I am simply unwilling to let go and move on.

Let’s walk through a scenario. Let’s say I’m an airplane manufacturer and I’ve decided to build the plane that will make the Dreamliner look like a rowboat. I’ve crunched the numbers and come to the conclusion that the potential revenue from such a plane is roughly $2 billion. Airlines and oligarchs all over the world are clamoring for my new plane. A rough sketch was leaked on the Internet, and, overnight, the phones started ringing. The only problem? I have to build it.

So I gather my engineers, aeronautics experts, and manufacturing team, and we begin planning, designing, and building the plane. It has everything—a floor reserved for parents flying with children, a pet hotel for travelers who ...

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Publisher Resources

ISBN: 9781118853573Purchase book