Behaviour
Anchoring
Fixating on an irrelevant reference point, usually the price you paid.
How it works
The purchase price feels significant and is not. The market does not know it, and it says nothing about what the holding is worth now or what it will do next.
Anchoring also attaches to 52-week highs, round numbers and past peaks, none of which carry information about the future.
Where it misleads people
"I will sell when it gets back to what I paid" is the purest form of this. It makes a decision depend on a number only you can see.
Related terms
- Disposition effectSelling winners too early and holding losers too long.
- Sunk cost fallacyContinuing with something because of what you have already put in, rather than what lies ahead.
- Cost basisWhat you actually paid for a holding, including fees — the number every gain or loss is measured from.
- Support and resistancePrice levels where buying or selling has repeatedly appeared in the past.
More in Behaviour
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.