Anchor Bias
Full form: Anchoring Bias
InvestmentsAnchor bias is the cognitive tendency to rely too heavily on the first piece of information encountered when making financial decisions. In investing, it causes people to anchor to a stock's past high price, their purchase price, or an arbitrary number -- leading to poor decisions.
In detail
Common anchoring mistakes in India:n1. "My SIP NAV was Rs 50, now Rs 35 -- I won't sell at a loss" (anchoring to purchase price, ignoring fundamentals)n2. "Sensex was 60,000, now 55,000 -- it must go back to 60,000" (no logical basis)n3. "This flat was Rs 80L, the seller is now asking Rs 70L -- must be a deal" (anchoring to irrelevant original price)n4. "I'll invest when the market falls to its March 2020 low again" (anchoring to a specific level that may never repeat)
Real-life example
Amit bought Nifty 50 index fund at NAV Rs 120. It fell to Rs 95. He refuses to redeem for an urgent need, anchored to his Rs 120 purchase price and waiting to "at least break even." He overlooks that the opportunity cost of waiting could far exceed the Rs 25 difference.