Over the holidays, I indulge in one of life’s simplest luxuries: time. Time to slow down, disconnect, and, most importantly, read. That usually means fiction; psychological thrillers, fantasy, page-turners, escapism. Reading for joy, and joy alone.
This season, though, my holiday reading delivered a lesson I was not expecting — one that felt uncomfortably familiar to anyone who has spent time in the investing world.
I picked up I Am Pilgrim, Terry Hayes’ sequel to his acclaimed The Year of the Locust. The first book, published in 2014, is a tightly plotted spy thriller that captivated readers worldwide. And yet, as I turned the pages of the new novel, anticipation gave way to confusion, then frustration, and finally disbelief. I was not reading anymore, I was enduring.
Why did I continue reading a book I was not enjoying? What I was experiencing is familiar to investors: the sunk cost fallacy. We continue with something simply because we have already invested time, money or energy. Even when the rational decision is to walk away. Finishing a book you no longer enjoy is harmless enough. In investing, the stakes are higher, and holding a deteriorating asset can be extremely costly.
In both cases, you have already invested something: time or capital.
We see this fallacy in practice when:
- A stock is down materially, yet investors keep holding because “we’ve already owned it this long.”
- A thesis weakens, but the original purchase price still anchors thinking.
- Investors confuse patience with stubbornness.
And this is where the lesson quietly shifts from sunk costs to something more dangerous.
When cheap isn’t value
Over the past few years, valuation has featured prominently in stock-related conversations. We have all heard the adage: “If you liked it at $25, you will love it at $10.” And sometimes, that is absolutely right.
But sometimes, it’s not a bargain, it’s a value trap. Low prices alone do not guarantee opportunity.
A value trap occurs when a stock appears cheap on traditional metrics yet deserves to be cheap because the underlying business is deteriorating, structurally impaired, or facing permanent change.
Low multiples do not guarantee upside. In fact, prolonged cheapness is often the market signaling something uncomfortable.
Investopedia defines a value trap (rather bluntly) as:
“Companies that have been trading at low multiples of earnings, cash flow, or book value for an extended period of time are sometimes doing so for good reason—because they have little promise—and possibly no future.”
At Pender, price alone is never the thesis. Intrinsic value is. And intrinsic value is not static.
Disciplined investing requires what I call re-underwriting. It means continually reassessing an investment against the same criteria that justified owning it in the first place. At Pender, we never give in on process — but we are always willing to give up on a position when the facts no longer support the thesis.
Discipline does not mean stubbornly holding on. It means continually re-underwriting an investment against the same criteria that justified owning it in the first place. The hardest part of investing is not generating ideas, it is being honest when the facts change.
Re-underwriting requires stepping back and asking:
- Has our assessment of intrinsic value changed? Not because the share price moved, but because earnings power, balance sheet strength, or cash-flow generation looks different than it did at purchase.
- Is management still allocating capital in a way that compounds value? Poor capital allocation can quietly destroy value, even in businesses that screen as “cheap.”
- Has risk increased without adequate compensation?
- Are we holding because the upside is compelling — or because selling feels like admitting we were wrong?
Opportunity cost is central to this discipline. Capital tied up in a thesis that no longer meets our risk-adjusted return criteria is capital that cannot be redeployed into higher-conviction ideas.
Selling is not an admission of error; it is an affirmation of process. We never give in on discipline, on reassessment, or on protecting capital. But we will always give in to the facts. And that, at Pender, is what disciplined investing looks like.
Sometimes the most rational move is to simply close the book, both literally and metaphorically. My own experience with The Year of the Locust illustrates this perfectly. Not because it improved, honestly, it got much worse, but because I couldn not let go. By page 557, I should have put it down and moved on. Nearly nine hundred pages later, the lesson was clear: know when to walk away.
The same is true in markets. Sometimes the most rational decision is not to wait it out. It’s to close the book, reassess, and redeploy attention — and capital — where the return on effort is higher.
In investing, that answer should always be grounded in fundamentals; not emotion, nostalgia, or sunk costs.
And in reading? Life is too short for bad books.
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