Anchoring Bias

1. The Problem with Anchoring

As investors, one of the most common traps we fall into is anchoring. This means fixating on certain price points — usually the price we bought an asset for or its previous high — and allowing that to shape our decisions, often without realising it. We become reluctant to sell something simply because it’s dropped below what we paid, even if the business case for holding it has quietly packed up and left.

This bias distorts our judgement. Instead of asking whether a company is still strong, growing, and aligned with our financial goals, we ask: “Will it ever get back to where it was?” The truth is, markets don’t care what we paid. They’re not sentimental. What matters is where a business is heading — not where it’s been, or how fond we were of it when we first met.

2. Emotional Attachment: A Costly Mistake

It’s easy to grow attached to a stock or company — especially one we researched thoroughly or that once performed well. We might admire its brand, leadership, or mission. But admiration doesn’t pay the bills, and loyalty, while lovely in friendships, is less useful in finance.

The danger lies in becoming emotionally invested, turning a financial holding into a matter of personal allegiance. When we’re loyal to an asset, we’re less likely to see its flaws. We might give it the benefit of the doubt, holding on longer than we should, even as it underperforms. Worse still, we might sell outperforming assets too early, assuming the good times can’t possibly last — a mindset familiar to anyone who’s ever tried to enjoy a sunny bank holiday.

The result? Missed opportunities, poor returns, and portfolios driven more by sentiment than strategy. Which, as you might imagine, rarely ends well.

3. Focus on What’s Working

Instead of being anchored to old prices or emotionally attached to companies, we should shift our mindset:

• Look for businesses that are performing well today — those with strong earnings, smart growth strategies, and positive momentum.
• Don’t be afraid to increase your exposure to assets that consistently deliver results. This isn’t chasing performance; it’s recognising competence.
• Equally, if something is underperforming and showing no clear path to improvement, take a step back. Ask yourself: “If I didn’t already own this, would I buy it now?”

If the answer is no, that’s your signal. No need for drama — just a quiet exit, like leaving a party that’s gone on a bit too long.

4. Review Your Entry Points and Assumptions

We all make investments with a future in mind — expecting a certain return, believing in a company’s potential. But if time passes and the results aren’t there, it’s worth reviewing your original decision. No need to beat yourself up; even the best plans occasionally resemble a soggy sandwich.

• Was the timing right?
• Did you buy based on hope or on solid fundamentals?
• Has the business changed since then?

There’s no shame in re-evaluating. In fact, it’s rather sensible. Revisiting your thinking gives you the chance to re-enter at a better price or walk away entirely. That flexibility is what separates reactive investors from strategic ones — and strategic ones tend to sleep better.

5. Make Clear, Rational Decisions

To avoid falling into these traps:

• Set rules for when to exit a position — don’t rely on gut instinct alone, unless your gut has a CFA.
• Make regular portfolio reviews part of your routine — ideally with tea, but that’s optional.
• Focus on business performance, not past price history.
• Don’t cling to stocks out of pride or nostalgia. Remember: your portfolio isn’t a family album. It’s a financial tool, and each asset in it should earn its place.

Final Thoughts: Stay Objective, Stay Ahead

Successful investing is as much about mindset as it is about picking winners. By letting go of emotional attachment and avoiding the trap of anchoring, we open ourselves to better decisions and stronger returns.

Best to have clarity and stick with what works. Let go of what doesn’t. And always be willing to change course when the data tells you to. That’s how performance is achieved — not through loyalty, but through logic. And perhaps a touch of quiet pragmatism, too.