Sunk cost and the position you built over eleven years

The sunk cost effect is the use of an unrecoverable past expenditure as a reason for a present decision. The expenditure is real, the effort behind it is real, and neither appears in any equation that governs what happens next.

Take 132 monthly purchases across eleven years totalling $487,400, now worth $1,246,000. The average contribution was $487,400 ÷ 132 = $3,692 a month. The unrealised gain is $1,246,000 − $487,400 = $758,600. Two of those three numbers describe the past. The lender uses exactly one of them: at a 55 percent advance rate, capacity is $1,246,000 × 0.55 = $685,300, and the cost base appears nowhere in that line.

The $487,400 has one live use, which is the calculation of tax on a sale. Beyond that it is history. It does not raise the advance rate, does not lower the threshold, does not extend a cure period and does not enter the maintenance test. It is, however, the figure a holder reaches for when explaining why the position cannot be reduced, and it is doing the work of an argument while containing no information about the future.

The asymmetry between how the position was built and how it can move is worth stating in a single unit. A 12.4 percent decline removes $1,246,000 × 0.124 = $154,504 in one session. At $3,692 a month, that is $154,504 ÷ $3,692 = 41.8 months of contributions — three and a half years of accumulation, undone between two closing prices, with no decision taken by anyone.

Effort and value are measured in the same currency and accumulate at completely different speeds. The market never sees the eleven years.