Anchoring influences how investors perceive value from "summary" of Beyond Greed and Fear:Understanding Behavioral Finance and the Psychology of Investing by Hersh Shefrin
Anchoring is a powerful psychological concept that influences how investors perceive value. When investors make decisions, they often rely on a reference point or "anchor" to evaluate an investment opportunity. This anchor can be based on a variety of factors, such as the price at which they purchased a stock, the current market price, or even a financial benchmark. Once an anchor is established, investors tend to make decisions relative to that anchor. For example, if an investor purchased a stock at $50 per share and the price drops to $40 per share, they may feel reluctant to sell because they are anchored to the original purchase price of $50. This anchoring effect can lead investors to hold onto losing investments longer than they should, in the hopes that the price will rebound and they can break even. Anchoring can al...
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