There is an old saying in economics that keeps coming to mind in recent months: “don’t throw good money after bad.” In other words, prior investments are sunk costs and are in the past. When allocating new capital, one should look to the future while ignoring the psychological effects of prior failed investments.
Business Models
As discussed in “Amazon is in full bloom,” examining a company’s core business model is at the center of the investment question. In this respect, the essence of the saying is that one should not make new investments in business models that have proven to be failures.
As a company’s business model is the ultimate arbiter of success, it is interesting that the topic garners such little attention in the investment community. In the torrent of information, we risk overlooking the very foundation upon which companies are built.
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