Introduction
Knowing when to walk away from a bad investment, relationship, or any other endeavor that is no longer worth pursuing is an invaluable skill. As the famous Kenny Rogers song goes, “You’ve got to know when to hold ’em, know when to fold ’em, know when to walk away, and know when to run.” This ability to cut your losses and move on, rather than stubbornly sticking with something that is only going to cause you more pain, takes wisdom, self-awareness, and an understanding of sunk costs.
In this article, we will explore when and how to know when it’s time to fold ’em in various aspects of life. We will cover how to identify when an investment has become too risky, signs that it is time to end a romantic relationship, recognizing when a project or career is no longer viable, and more. We will also discuss techniques for overcoming the natural biases that make it difficult for people to walk away once they have committed time, money, or emotion. Learning to wisely discern when persistence will pay off from when cutting losses is better in the long run is a skill that can save you much heartache and wasted resources.
How to Know When to Fold ‘Em in Investing
Deciding when to sell a stock, liquidate an underperforming asset, or walk away from a bad investment is tricky. Our natural inclination is often to hold on, hoping the investment will turn around. However, prudent investors realize when it is time to cut their losses. Here are some signs it may be time to fold ’em in investing:
The Investment Consistently Underperforms
Every investment will have some ups and downs. However, if your investment consistently delivers subpar returns compared to the rest of the market for an extended period of time, it may be time to re-evaluate. Pay attention to stocks or funds that chronically underperform their peers or benchmark indexes.
Ask yourself if anything fundamental has changed with the company or sector that might turn performance around. If the underperformance seems likely to persist, it may be time to fold ’em and reallocate that capital to better opportunities.
The Fundamentals Deteriorate
Take an objective look at the fundamentals underlying your investment. For stocks, this means factors like sales, revenue, management, and the company’s overall market position and competitiveness. Has the company’s position worsened? Are revenues and profits falling without explanation? Does the company face new competitive threats or lawsuits? Deteriorating fundamentals signal it may be time to sell before the investment declines further.
Your Investment Thesis No Longer Holds Up
Re-examine what led you to make the investment in the first place. Does that logic still hold up? If market conditions or other factors have evolved so your original investment thesis is no longer valid, that investment no longer deserves a place in your portfolio. Be willing to admit when your initial analysis was wrong and sell when your reason for investing no longer makes sense.
You Need the Money for Another Opportunity
Sometimes an investment needs to be liquidated, not because of poor performance, but simply because a better opportunity has arisen. Evaluate whether you have a chance to put that capital to higher and better use in another asset or investment. Be disciplined about selling decent but underperforming assets to fund great opportunities that don’t come along often.
Your Risk Tolerance Changes
The investment may be performing fine, but if your personal risk tolerance has decreased, it may be time to sell riskier assets. Re-evaluate your portfolio after major life events like having a baby, facing a health issue, or approaching retirement. What seemed like an acceptable risk previously may no longer be prudent. It’s wise to fold ’em and move to safer assets as your life situation changes.
Knowing when to cut losses rather than double down is an essential investing skill. Be ready to objectively evaluate when an investment thesis no longer holds or when better opportunities exist elsewhere. Refusing to acknowledge and accept failure can dig you into an even deeper hole.
Signs It’s Time to Fold ‘Em on a Project or Career
Persistence and grit are good traits, but there comes a point when it makes sense to change course rather than investing more time and resources into a project or career that is simply not working out. Here are some signs it may be time to fold ’em:
You’ve Given it Your Best Effort
If you’ve truly given an idea or career path your best effort and it still has not taken off, that’s a clue it’s time to try something new. How long you keep working at something depends on the context, but at a certain point, your best efforts may not be enough if the underlying opportunity just isn’t there.
You Keep Hitting Roadblocks
Despite your most creative solutions and diligent efforts, the major obstacles plaguing your project or career remain firmly in place. If you keep running into the same roadblocks, it may be a sign that they simply cannot be overcome. Continuing to beat your head against a brick wall is unproductive.
There is No Traction or Progress
You expect setbacks along the way, but overall there should be some forward momentum and signs of gradually building traction. If month after month goes by with no meaningful progress or movement, it becomes harder and harder to justify continued investment.
It is Financially Unsustainable
Persisting for awhile without profit can be typical for new ventures as they build a client base. But there comes a point when losing money month after month becomes reckless rather than bold. Know when resources would be better applied elsewhere.
Your Health is Suffering
Sticking with a toxic job or high-pressure project can take a real mental and physical toll. If sleepless nights and constant stress are impacting your health, it’s time to walk away, even if the conventional wisdom says to stick it out. Your well-being comes first.
Friends and Mentors Tell You It’s Time to Quit
Getting an outside perspective from people you trust can provide clarity. If close confidants are united in gently suggesting it is time to move on, be open minded. They may have insight into flaws and limitations of the situation that you cannot see.
Knowing when to fold ’em is difficult, because time invested makes us reluctant to walk away empty handed. But analyzing when cutting losses is the wisest path forward versus when persistence still has merit can save you from wasted effort on doomed endeavors.
How to Know When It’s Time to End a Relationship
One of the most difficult judgement calls we have to make is deciding when a romantic relationship has run its course. Do you hold on in hopes things will improve, or cut your losses and move on? Consider the following signs it may be time to fold ’em on your relationship:
Your Needs Aren’t Being Met
Healthy relationships involve mutual caretaking and compromise. If your core needs in areas like intimacy, communication, trust, respect or values consistently go unfulfilled, with little improvement from your partner over the long-term, it may be time to walk away.
You’ve Grown Apart
People naturally change and evolve over time – sometimes in incompatible ways. If you’ve gradually grown apart in terms of interests, lifestyle preferences, goals, or vision for the future, persisting may just delay the inevitable.
Major Lies or Repeated Dishonesty
An isolated lie can sometimes be overcome if the deceiver takes responsibility and rebuilds trust. But a pattern of small lies and dishonest behavior signals a problem at the core of the relationship that is difficult to fix. Know when to fold ’em.
Things Have Gotten Physically Abusive
This should go without saying, but any physical violence in a relationship is an immediate sign it’s time to walk away. Your safety and well-being are paramount. Remove yourself from physically dangerous situations right away.
One Partner Refuses Counseling or Change
If problems have reached a crisis point where counseling seems warranted, but your partner repeatedly refuses to go, or goes only grudgingly with no intent to actually listen and improve, that is a bad sign. It is time to part ways.
You Stay Only Out of Obligation or Guilt
When you spend more time justifying reasons to break up rather than remembering why you want to stay together, that’s very telling. A relationship motivated mostly by a sense of duty, sunken costs, or feeling trapped is doomed. Know when it’s time to fold ’em and move on.
Breaking up is almost always difficult, even when you know it is the right decision. Having close friends you can turn to for support during the transition out of an unhealthy relationship will make walking away easier when it’s time to fold ’em.
Overcoming Biases that Make it Hard to Walk Away
Humans naturally fall victim to biases that make it extremely difficult to walk away from a failing endeavor once time, money, or emotion has been invested. Being aware of these counterproductive tendencies, and intentionally countering them, can help give you the clarity to know when it is truly time to cut losses and fold ’em:
Sunk Cost Fallacy
The more time, money, and energy you’ve put into something, the harder it is to abandon it. But letting past investment influence future decisions is irrational. Judge each situation based on current facts and probable future outcomes, not sunk costs.
Loss Aversion
Accepting failure is difficult. But allowing fear of loss to dictate sticking with a poor investment often just turns a small loss into an even bigger one. Don’t compound the damage. Know when to fold ’em.
Over-optimism and Confidence Escalation
It’s tempting to think you are one person uniquely capable of turning around a struggling endeavor when others could not. But objective data is more reliable. Beware of ego and over-optimism clouding your judgement.
Responsibility and Guilt
When people depend on you, like employees or team members, it’s harder to pull the plug. Be willing to let people down for the greater good. Don’t go down with the ship just to avoid tough conversations.
Fear of Wasted Time
Walking away can feel like the time invested was for nothing. But reflect on the lessons learned from the experience. Nothing in life is ever truly wasted if used as an opportunity for growth. Then look forward.
Making rational decisions about when persistence makes sense versus when it’s time to cut losses is hard. But identifying common pitfalls that lead to sticking too long with losing investments, relationships, and situations can help equip you to make wise, dispassionate choices. Know when to hold ’em, and know when to fold ’em.
Key Takeaways on Knowing When to Fold ‘Em
- Examine investments rationally, selling when the thesis no longer holds. Don’t stay married to underperformers.
- Recognize when a project or career path has hit dead ends despite your best efforts. Pivot.
- Relationships you stay in only out of obligation, not happiness, drain life. Choose yourself.
- Identify biases like sunk cost fallacy that push you to persist. Make choices based on facts and data.
- Surround yourself with wise advisors who will give honest feedback, not just what you want to hear.
- Staying too long worsens losses. Accept occasional failure as natural. Cut losses and move forward.
- Refusing to fold ’em once in a while can indicate unhealthy stubbornness, not persistence.
- Change course when needed, but don’t become a chronic quitter at the first challenge either. Find balance.
- Fold ’em when rational, but know some endeavors do require long-term grit and tenacity to succeed. Judge each scenario independently.
- Learn lessons from failures so mistakes become gain, not loss. Past efforts are never truly wasted if they teach you something.
Conclusion
Life presents tough judgement calls on whether it is time to walk away or keep persevering. While persistence and grit have merits, blindly sticking with a losing proposition is unwise. Investments, projects, careers, and relationships all sometimes reach a point of diminishing returns where cutting losses, though difficult, is the prudent choice. Sunk costs should not dictate future decision making. While fears of failure, looking foolish, or wasting time and effort all push us to hold on too long, overcoming these biases leads to better outcomes. Surround yourself with trusted advisors who can provide an objective outside perspective. With practice, you can build the discernment to know when it is time to fold ’em across all facets of life, saving yourself much wasted time, money, emotion, and effort in the long run.
