Summary
As the old song goes, you have to know when to hold them and you have to know when to fold them. It can be very challenging to know when to walk away from a failing business or a plummeting stock. As an entrepreneur, your bias toward action and optimism may blind you to reality. You may find yourself trying to salvage a dead-end idea in vain.
I’ve been there myself. It’s not easy to just walk away after investing considerable amounts of your time and energy. But a simple change in your mindset may help you to make the shift away from focusing on your losses, toward what you stand to gain.
Read on to learn more on how you can find the wisdom and strength to bounce back when an opportunity fizzles.
Transcript
When you value your time and your money, it can be very difficult to walk away. Even when faced with a losing proposition, many of us will only see all of the hours and sweat and resources that we put in. We are understandably reluctant to let go with what we see as a sub-optimal result.
It’s certainly true in the stock market, whether you are trading currencies or commodities or any other type of asset. But you absolutely need to understand when it’s time to cut your losses. After all, holding on to your capital is the single most important key to being a successful long-term trader. That’s why no less an authority than Warren Buffet has said that Rule #1 in amassing wealth is “don’t lose money. And Rule #2 is to never forget Rule #1.”
The tricky part is how exactly you should know when it is time for you to quit. After all, Buffet is also the one who famously advised to, “Be fearful when others are greedy and greedy when others are fearful.” There is a premium that can come along with going against the grain of conventional wisdom, but you need to be grounding your decision making in sound experience and logic, or risk losing your shirt altogether.
Re-examine Assumptions and Pivot
The circumstances are always different for everyone depending on what field you are in, but my general experience is that when a new business venture isn’t working or a new ad campaign isn’t providing me with a positive return on investment, I stop what I am doing. Period! I then take some time to step back and re-evaluate all of my assumptions that led to the decision, in order to determine if I have missed some crucial insight or information. I will then reorganize and shift direction, or “pivot” as it is often called in business startups. I do this as warranted and start again. Slowly. Resist the temptation to rush into major new changes, follow a steady, methodical pace that will allow you to identify potential pitfalls.
Of course the circumstances are always different, but my experience is that if a new business venture isn’t working out very well or if an ad campaign for my business isn’t producing a positive return on the investment, I stop what I am doing. Period! I stop what I am doing and re-examine all the ins and outs of my assumptions, checking my research to see what I have missed. I will then reorganize and start again. Slowly. Always start slowly and then get ready to ramp up as the success begins.
An Honest Assessment
Knowing when to get out of a losing proposition requires that you are honest with yourself. Don’t let a sense of fear or embarrassment stand in the way of doing what you know, in your heart, needs to be done. None of us are perfect and we all have blemishes on our records. Your measure lies not in never making an error, but in responding with grace and wisdom.
If You Can’t Avoid – Minimize
Timing is everything. Many investors find themselves with real tests during down markets. They often find themselves selling their holdings after only minor gains while they go on to skyrocket, or holding onto a stock that goes on to plummet. Recognize that making some investments that go south is inevitable. Your focus should not be on avoiding any type of loss altogether, but simply minimizing them.
Leave Your Pride At The Door
Most of us don’t like admitting that we made a mistake. This sense of pride can lead to us to avoid selling a stock at a loss, convinced that our judgement will be vindicated in the long run when our investment begins to bear fruit. Recognize that you sometimes must simply bite the bullet and get out before your loss can grow out of control, whether in the stock market of starting a new business. Recognize that simply being optimistic is not a strategy. You have to have a logical case that you can make for a given opportunity to pay off over time.
Develop a Game Plan
It can help if you develop clear criteria for a set of rules that dictate when you will consider getting out of an investment, be it a stock or business. You might consider putting on the brakes, for example, if you have consistently seen losses for a given stretch of time. Or you might ask yourself, given what you know now, would you still start the same business today with the information that you have at your disposal? If the answer is a resounding “no”, it may well be time to get out.
The Silver Lining
It is important to keep in mind that getting out of a particular situation doesn’t mean that it has been a total loss. A narrow focus on the dollars and cents of a given transaction could blind you to the benefits in wisdom and knowledge you gain from even a bad investment. If you see the opportunities that don’t work out as learning experiences, you will have gained wisdom and resist the temptation to take other similar risks in the future.
All of this applies to relationships, partnerships, and just about every facet of life. We all know what it’s like to stay in an arrangement long after it has stopped being satisfying or logical. That’s why some leaders continue to pour manpower and investments into initiatives that are clearly not going to pan out. Just look at how many movie sequels continue to be churned out in some franchises long after it is clear that audiences have moved on. It may even be clear to outside observers that it’s time to be moving on, but that person doesn’t have a clear vantage point of all of the time and sacrifices made that make it so difficult to move on.
A key concept from your college or high school economics course that applies here is the idea of “sunk costs”. Simply put, it is a cost that has already been incurred that cannot be recovered. No matter how much I might want to cling to a business idea that didn’t pan out, my stubbornness can’t help me bring back all of those hours that I invested. And my stubbornness is keeping me from moving on with a more viable path forward elsewhere.
So how can you better determine when it is time for you to be moving on from an idea that may not have borne legs? You can shift your focus away from what you have lost and place it on what you stand to gain. Some researchers call this moving from a “prevention focus” to a “promotion focus”. Walking away from a losing investment will free up time and energy for you to apply your hard-fought knowledge to a new endeavor. So when you are confronted with a passion idea of yours failing, take some time to reflect on how you can apply the lessons to the success you will enjoy elsewhere.
Accept that some failure is a part of life. It doesn’t mean that you shouldn’t be in the game at all. The more seeds you plant and the more ideas you pursue, the more challenges you will inevitably face along the way. But you will also set yourself up for a far higher likelihood of success. Always analyze what it is you are investing your time and money in to be sure they meet with your personal Wealth Freedom Strategy.
You can also learn more by visiting my website: tonyneumeyer.com and registering to receive free trainings articles and more. Also subscribe to my YouTube channel and follow me on Facebook. You can get your copy of The 7 Minute Millionaire and check out my other books at https://tonyneumeyer.com/books/.
