Are You Married to Your Position?

If you’ve spent any time in finance or sports, then you've probably heard of the power of compound interest. Small, frequent contributions add up over time. This goes for a mutual fund or shooting a basketball. The value of compound interest lies in the long term.

In general, this means that the longer a relationship or investment, the more you should hold on to it. You hold on to these things because time will continue making them more valuable.

But what if things change? If your friendship gets rocky, do you literally “ride or die”? If the Meme stock you’re holding doubles overnight, do you owe it to yourself to secure a profit or do you HODL(hold on for dear life) just because of how long you’ve held it?

It depends. But in his book “Fooled by Randomness”, Nicholas Nassim Taleb gives us a framework we can borrow:

“Say you own a painting you bought for $20,000, and owing to rosy conditions in the art market, it is now worth $40,000. If you owned no painting, would you still acquire it at the current price? If you would not, then you are said to be married to your position. There is no rational reason to keep a painting you would not buy at its current market rate - only an emotional investment.”

But it doesn’t stop at paintings. After all, everything has a price to pay.

A relationship, for example, means dealing with the good along with the bad. With that in mind, if your spouse suddenly turned abusive, would you overlook it just because he/she doesn’t abuse you ALL the time? Or worse yet, because you invested so much money and time in them?

Here’s a better question to ask: If you had known abuse was going to be a part of the relationship, would you have still dated that person? Was that a price you would have been willing to pay?

If you realize that this wasn’t what you signed up for, then like the owner of the $40,000 painting you are married to your position if you choose not to leave.

So this week, look around at your investments. Your rare book collection, friendships, or stock portfolio. Look past how long you’ve had these things or how much money you have invested in them and instead ask yourself if you would pay the current cost to acquire these investments.

In other words, ask yourself: “Am I married to my position?”.