When investors look at a stock, the first number they see often sticks in their mind. It could be a past high, a purchase price, or an analyst target. Even when new information appears, that initial reference point continues to influence decisions. This behavior is known as anchoring bias.
Anchoring bias in investing can quietly distort judgment. It causes investors to rely too heavily on an initial value and adjust too slowly when conditions change. Over time, this can lead to poor timing and missed opportunities.
This guide explains what anchoring bias is, how it affects stock decisions, and how investors can reduce its impact.
What Is Anchoring Bias?
Anchoring bias is the tendency to rely too heavily on the first piece of information encountered when making decisions.
In simple terms, it means getting stuck on a number.
Anchoring bias investing occurs when investors fixate on reference points such as:
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A stock’s previous high
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Their original purchase price
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A round number like 100 dollars
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An analyst price target
Once anchored, investors often interpret new information relative to that reference, even if it is no longer relevant.
How Anchoring Bias Shows Up in Stock Decisions
Anchoring bias appears in many everyday investing situations.
Fixating on the buy price
Investors may refuse to sell a losing stock because they want to get back to their original purchase price, even when fundamentals have changed.
Comparing everything to past highs
A stock that once traded at 150 dollars may look cheap at 100 dollars, even if the business outlook has weakened.
Relying too much on price targets
Analyst targets can act as anchors, shaping expectations even when new data suggests those targets are outdated.
Holding winners too long or selling too early
Anchors can also work on the upside, causing investors to sell simply because a stock has reached a familiar level, not because conditions have changed.
Real World Examples of Anchoring Bias
An investor buys a stock at 80 dollars. The price later falls to 60 dollars due to weaker earnings. Instead of reassessing, the investor focuses on 80 dollars as a target to break even.
Another example appears after market sell offs. A stock that traded at 200 dollars may seem attractive at 140 dollars purely because of the comparison, even if the company’s growth prospects have deteriorated.
In both cases, decisions are driven by reference points rather than current reality.
Why Anchoring Bias Is Risky
It distorts valuation
Anchors replace objective analysis with arbitrary numbers that may no longer reflect true value.
It delays decision making
Investors may wait for prices to return to an anchor instead of responding to new information.
It increases opportunity cost
Capital tied to anchored decisions cannot be redeployed to better opportunities.
It reinforces emotional attachment
Anchors often strengthen emotional ties to positions, making objective reassessment harder.
How to Reduce Anchoring Bias in Investing
Anchoring bias cannot be eliminated completely, but it can be managed.
Focus on current fundamentals
Evaluate a stock based on current earnings, growth, and risks rather than past prices.
Redefine reference points regularly
Update your assumptions when new information emerges instead of clinging to old numbers.
Use decision rules
Clear entry and exit criteria reduce reliance on arbitrary price levels.
Think in probabilities, not targets
Shift focus from exact prices to ranges of outcomes and risk scenarios.
Review decisions without price memory
Ask whether you would still buy or hold the stock today if you did not know its past price.
Anchoring Bias vs Discipline
Using reference points is not always wrong. Discipline involves using predefined levels as part of a structured plan.
Anchoring bias appears when those levels remain fixed despite changing facts.
The difference lies in flexibility and evidence, not the presence of rules.
Conclusion
Anchoring bias in investing causes investors to fixate on initial reference points and ignore new information. This can lead to delayed decisions, poor timing, and missed opportunities.
By recognizing anchoring bias and focusing on current data rather than past prices, investors can make clearer, more objective stock decisions.
If you want to practice disciplined investing while learning in real markets, you can explore US stocks through the Gotrade app. Fractional shares make it easier to test ideas, reassess decisions, and build experience over time.
FAQ
What is anchoring bias in simple terms?
Anchoring bias is relying too much on an initial number, such as a past price, when making decisions.
Why is anchoring bias common in investing?
Prices are easy to remember, and early information often feels more important than later updates.
Can anchoring bias affect experienced investors?
Yes. Experience does not eliminate anchoring. It requires active effort to reassess assumptions.
How can investors avoid anchoring bias?
By focusing on current fundamentals, updating assumptions, and using clear decision rules.
Reference:
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Corporate Finance Institute, Anchoring Bias, 2026.
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Verywell Mind, How Anchoring Bias Affects Decision-Making, 2026.
Disclaimer
Gotrade is the trading name of Gotrade Securities Inc., which is registered with and supervised by the Labuan Financial Services Authority (LFSA). This content is for educational purposes only and does not constitute financial advice. Always do your own research (DYOR) before investing.
