Posted by on February 12, 2018
When the stock market goes down, as it has over the past week, some investors hold off on buying or selling until the security they have in mind comes back up to a particular price. For instance, Investor A might decide to hold onto his GE stock, which was at roughly $19 a month ago and is now at $14, until it returns to $19. He may have bought the stock at $10 and still be making money, but in his mind he would lose money if he sold at any price less than the peak price. This is called “anchoring”: when one attaches, or “anchors”, a thought to a reference point even if it is not logical, relevant or valid. It’s important to remember that investment decisions should be made on the “real” data, for instance the fundamental value of a stock, or whether your portfolio allocation needs adjusting. Don’t get stuck on a particular dollar value of an individual security, or even of your entire portfolio. Wise investors strive to take emotional or behavioral factors out of investment decisions.
