Anchoring Bias in Investing: Why You Can’t Let Go of a Stock’s Past Price

Are You Stuck on the Price You Paid?

You bought a stock at $100 per share. It drops to $70, and instead of cutting your losses or reassessing the investment, you tell yourself: “I’ll sell when it gets back to $100.”

Sound familiar? That’s anchoring bias in action.

Anchoring bias is a cognitive trap where investors fixate on a specific price, usually the price they paid for a stock, rather than evaluating it based on its current fundamentals. This psychological attachment can lead to bad decisions, missed opportunities, and unnecessary losses.

In this article, we’ll explore:

• What anchoring bias is and why it affects investors
• Common ways anchoring leads to poor investment choices
• Real-world examples of anchoring bias in action
• How to overcome anchoring and make smarter investing decisions

By the end, you’ll know how to let go of past prices and focus on what truly matters: future potential.

What Is Anchoring Bias in Investing?

Anchoring bias occurs when investors rely too heavily on an initial piece of information (the “anchor”) when making decisions. In investing, this usually means:

• Fixating on the price you paid rather than a stock’s actual value.
• Comparing a stock to its all-time high and assuming it will return to that level.
• Holding onto losers because of an arbitrary price target.

Why This Bias Exists

Our brains are wired to resist losses. Psychologists call this loss aversion, the idea that losing money feels worse than gaining the same amount feels good. Anchoring bias fuels this by making us believe that past prices are somehow “correct,” even when the market tells a different story.

Common Mistakes Investors Make Due to Anchoring Bias

1. Holding Onto Losing Stocks for Too Long

Investors often refuse to sell at a loss, hoping the stock will “recover” to its purchase price.

Example:

• Many investors held on to General Electric (GE) for years after it fell from over $50 per share in 2000. Instead of reevaluating the company’s fundamentals, they kept waiting for a rebound that never fully came.

2. Buying a Stock Just Because It’s ‘Cheap’ Compared to Its High

A stock trading at $50 after hitting $150 isn’t necessarily a bargain. If fundamentals have changed, it may still be overvalued.

Example:

• Peloton (PTON) peaked at $160 during the pandemic but crashed below $10 as demand plummeted. Many investors bought the dip, assuming it would return to its highs, without considering the company’s long-term prospects.

3. Ignoring Better Investment Opportunities

By anchoring to a past price, investors get emotionally stuck in an underperforming stock instead of moving their money into better opportunities.

Example:

• Many investors clung to IBM while it lagged behind, instead of shifting to faster-growing tech companies like Apple, Microsoft, or Nvidia. (Note: This does not mean you should throw capital in other words your money into these tech stocks just because they are faster growing. This strategy would have only made sense if you had already recognized the direction these companies were heading before they became the media’s latest hype. Investing in these stocks after the hype could just as easily lead to devastating losses if you aren’t prepared to hold for the long term.)

How to Overcome Anchoring Bias and Invest Smarter

1. Focus on Current Valuation, Not Past Prices

• Ask: Would I buy this stock today at its current price?
• Look at earnings growth, cash flow, and competitive positioning, not just price history.

2. Set Clear Sell Rules Before You Buy

• Use stop-loss orders to automatically exit bad trades.
• Set a plan for why and when you’ll sell a stock based on fundamentals.

3. Compare to Alternative Investments

• If your money weren’t in this stock, where else could it be?
• Always ask: Is this the best place for my capital right now?

4. Accept That Losses Are Part of Investing

• Even the best investors take losses, what matters is learning and adapting.
• Don’t let pride or emotions dictate your financial decisions.

Final Thoughts: Let Go of Anchors and Look Ahead

Anchoring bias traps investors in the past instead of helping them make smart, forward-looking decisions. The best investors don’t obsess over where a stock has been, they focus on where it’s going.

The next time you catch yourself thinking, “I’ll sell when it gets back to what I paid,” stop and ask yourself: Is this stock still a good investment today? If the answer is no, it might be time to move on. Just make sure that you learn from your losses as much as you do your wins.

Let go of the anchor, and start investing for the future, not the past.