Opportunity Cost

The potential gain foregone by choosing one investment or action over another. Every dollar tied up in a stagnant stock is a dollar that could be earning returns elsewhere, and every hour spent analyzing a mediocre setup is an hour not spent on a higher-probability trade. Opportunity cost is invisible on any financial statement but is one of the most important concepts in both investing and life. Warren Buffett has called it his primary decision-making framework -- every new investment must be better than the next best alternative.