54. The Tool Every Entrepreneur Should Steal from Wall Street: The Reinvestment Rule

If you were starting your business from scratch today, what would you absolutely not choose again?

That glitchy piece of tech you keep tolerating? The team member who takes more energy than they give back? The vendor relationship that makes your stomach sink every time their name pops up in your inbox?

We all have things in our business that made sense at one point, but gradually stopped working somewhere along the way.

The tricky part is that once we have invested time, money, effort, or emotion into something, it can feel hard to let it go. So we keep choosing it by default, even when we would never actively choose it again today.

That’s where the reinvestment rule comes in.

Borrowed from the world of finance and portfolio management, this simple decision-making tool helps you look at your business with fresh eyes and ask: knowing what I know now, would I still invest in this?

In this post, I’ll show you how to use it to make clearer, smarter decisions about where your time, energy, money, and focus should go next.

Where the reinvestment rule comes from

I picked this up in my business school finance class, and it's stuck with me ever since. Originally, it was framed around portfolio management. Imagine you're in charge of a portfolio of stocks, and your whole job is to make that portfolio perform as well as possible for your clients.

Finance folks have a few different names for this idea: portfolio rebalancing, sell discipline, active management, opportunity cost decision-making. But they all boil down to one simple question:

Knowing what you know now, would you still buy the same stock that's in your portfolio at today's price?

When I first heard it, I was a little confused. Why are we asking about stocks we already own? But that's exactly the point.

Why it works

Folks in finance are wonderfully unattached and unemotional about money. That makes it easy for them to stay clear about what success looks like. And it always comes back to one thing: where's the best place to put my next dollar?

A couple of beliefs sit behind that question:

• Opportunity cost — your money should always be invested in the best idea available today.
• Capital reallocation — you should be willing to keep moving money around so it's always flowing toward higher-value opportunities.

Asking the question this way also protects you from some very human biases we all fall into:

• The endowment effect — overvaluing something simply because you already own it.
• Status quo bias — doing nothing because it feels easier.
• Anchoring — clinging to past prices or past decisions.

The beauty of it is that it forces your decisions to be forward-looking and based on where you are now, not on history or personal attachment.

Using it in your business

Here's where it gets useful for us. The "next dollar" doesn't have to be a literal dollar. For entrepreneurs, it's your time, your energy, your attention, and your relationships.

So the question becomes:

What in your business are you currently doing that you wouldn't start for the first time today? And if you wouldn't start it today, why are you still doing it?

Because here's the truth that's easy to miss: if you continue to hold onto something, it's the equivalent of choosing it again. Every decision, whether you're putting money into something new or simply holding onto what you've got, is a fresh allocation decision.

The four traps that get in the way

The moment you start asking this question honestly, your brain will fight back. I'll use an underperforming staff member as the example, but this works just as well for glitchy tech, an offer that isn't landing, or a vendor relationship going sideways.

• Sunk cost fallacy: 

"I've already put so much into this, I can't stop now."

We justify continuing because of what we've already invested, telling ourselves we've come too far to quit.

• Identity and ego: 

"This is just who I am. I'm a great boss who goes the extra mile for my staff."

Watch for labels about yourself being used to justify the decision. That's ego sneaking in, not your actual values.

• Status quo bias:

It feels safer to do nothing than to change. Our brains love the familiar, so we avoid things like rolling out a performance review process because we know it'll feel stressful and meet resistance.

• Hidden fear:

Fear of wasted effort, fear of being wrong, fear of letting go, fear of disappointing people. Any of these can steer a decision without us realizing it.

One thing worth remembering on status quo bias: your confidence won't come from things staying the same. It comes from taking action, and being kind to yourself afterwards.

How to apply this rule to your  business

Start with your current operations. Look at what you're doing today and ask: if I had to make this decision now, would I still make this investment? Then use your honest answers to spot what needs to improve and what needs to be dropped.

Sometimes that means admitting something isn't working anymore. If you wouldn't hire that person again today if they walked in and applied, that's your answer. And it's time to act. As a small business owner, you don't have the luxury big corporations have of letting things linger. It's simply too expensive to let these things drag on.

Once you've worked through what you already have, you get to ask the more exciting question: how do I want to allocate my time, energy, focus, and money going forward so I'm always moving closer to my goals?

Ready to stop pouring resources into what's no longer working? Let's talk. Get in touch to book a free discovery call at [email protected] and we'll brainstorm together how to build the clinic of your dreams.