Don’t Let The “Anchoring” Fallacy Drag You Down!

Every year, investors lose billions of dollars due to logical fallacies. While there are plenty of stock market misconceptions, few are as common — or as dangerous — as “Anchoring.”

Anchoring is a psychological concept where investors convince themselves that an asset should be worth a specific amount of money.

“Dogecoin to one dollar” is a good example of this.

Or, you’ll see various short-term options sellers try to predict how much a company will be worth by a specific date — only for unforeseen events to ruin their plans.

Trying to guess the exact price of an asset, or getting caught up in a market-wide consensus of what something should be worth, is a risky game. And following this strategy is a good way to find yourself bag holding worthless options or lame-duck investments.

On top of this, associating a stock or asset with a particular price can actually lock you out of future buying opportunities.

Back in April of 2020, I set an Archer-Daniels-Midland Company limit order for the peak-pandemic March low price. Archer-Daniels-Midland never sunk that low again, and I never purchased more shares. If I had simply bought the stock at its then-current price, I would have doubled my money in the long-run.