Anchoring

People use a reference point to decide something. Psychologists call it an “anchor.” Often the use of a reference point is not a conscious decision and not a rational choice.


In the world of personal investing price is often the reference point when deciding whether to hold or sell a position. If the position has been held less than a year then we tend to use the purchase price in deciding whether to hold or sell. More than year then the reference point is the year to date high price.


My advice is to make sure the anchor is a known and rational choice.