Sunk Cost fallacy

This fallacy occurs when investors continue to pour money into a losing investment simply because they have already committed significant resources, rather than objectively reassessing the stock's prospects.

An example for me was a company called Tanka Platforms.

If you look at the headline numbers in May-2024, this was a company with sales growing at 37% YoY, generating 500 Crs of profit and available at a PE of 22 - in a market when even small cap companies were trading at 35-40x PE.

And if you bought it at that price (950-1000), you’d see your capital erode by 30% in 5 months and 60% in 10 months.

A company, where you chose to invest at 22x PE was available at even lower valuations at these times.

And doubling down at each of these times feels like catching a falling knife and you’re compelled to do it, because you can’t digest such high losses and you’re averaging down to justify already invested money.

But instead, if you reassessed at any point and looked at the company from fresh eyes - you’d see so many red flags, that you’d be disgusted how you ever invested in the first place.

Stuff like corporate governance issues from the past, margin pressure due to increasing competitive intensity, commoditized nature of the business, Accounting concerns raised by auditors and activist investors, political affiliation of the promoter - were all available at the click of a button.

But you chose to ignore it because of “low” valuation and then stupid enough to double down at each fall because you didn’t understand what a sunk cost fallacy is.

Don’t be narcissistic enough to think you’ve found a hidden gem, especially when that gem is an 18 year old company that was the first “tech products” company to be listed in the country…

Some companies are available for dirt cheap price because they are dirty and cheap.