Anchoring bias is when we fixate on a single piece of information to make an assessment. That is why, during a price negotiation, you should always be the first to suggest a number, because all further negotiations will anchor around the number you proposed, which you would have skewed in your favour. The price should be low if you’re buying and high if you’re selling.
For investors, anchoring bias can negatively influence their judgement. In this column, I want to focus on share prices and something I call ‘price bias’.
We have more than 100 shares on the JSE trading more than 30% below their 12-month highs, with several of them down by 80% from these highs. An investor may look at this and decide that it means a share is cheap and worth investing in. But that investor is suffering from price bias as they are fixating on the share price while missing the real story.
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