Anchoring Bias: Why You Won't Sell a Stock Below What You Paid for It
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6 min read
You bought a stock at Rp2,000. It fell to Rp1,200. The company has since lost a big customer, and profit is shrinking.
Everything says the plan has changed. Yet one thought keeps coming back: "I'll sell when it gets back to Rp2,000."
That thought has a name. It is anchoring bias. This post shows how it works, what research says about it, and one simple question that helps you get free of it.
Anchoring bias is the habit of leaning too hard on the first number you see. Once a number sits in your head, your later guesses stay close to it, even when it has nothing to do with the question.
In investing, the number that grabs most people is their own purchase price. It is the first number you attach to the stock. So it quietly becomes the yardstick for "good" and "bad".
Here is the plain fact. The market does not know your purchase price. It does not care either.
A stock's price today reflects what buyers and sellers think the company is worth today. Your Rp2,000 is a fact about your history. It says nothing about the company's future.
Think of it this way. If you held cash instead of the stock, would you buy it today at Rp1,200? If the answer is no, then holding it is the same as buying it again at Rp1,200. You are making that choice every day you wait.
Anchoring was shown in a famous 1974 experiment by psychologists Amos Tversky and Daniel Kahneman. They spun a wheel that was rigged to stop on either 10 or 65. Then they asked people what percentage of African countries are in the United Nations.
People who saw 10 guessed about 25% on average. People who saw 65 guessed about 45%. The wheel was plainly random, and it still pulled the answers. Secondary summaries of the study also report that paying people for accurate answers did not remove the effect. (Anchoring effect, Wikipedia; I could not open the original paper, so these figures are secondhand.)
Experts are not immune. In a 1987 study by Northcraft and Neale, real estate agents valued the same house after seeing different asking prices. Agents who saw a higher asking price gave higher values. A later replication found agents were somewhat less anchored than students, but still clearly anchored. (IDEAS/RePEc entry for the 1987 paper; full text was behind a paywall, so the details come from secondary accounts.)
Anchoring on your purchase price leads to a few common patterns.
Waiting to "break even". You refuse to sell below your cost, even when the company's story has changed. The goal becomes getting back to Rp2,000, not making a good decision.
Selling winners too early. A stock you bought at Rp1,000 hits Rp1,500. It feels like a nice gain, so you sell. But the company is still growing fast. Your price was never a ceiling.
Averaging down on autopilot. You buy more at a lower price just to pull your average cost down. Your average cost basis is a bookkeeping number. It does not make a weak company stronger.
One well-known study looked at this pattern at scale. Terrance Odean studied the trades of thousands of US brokerage accounts. Outside December, investors sold about 14.8% of their winning positions but only about 9.8% of their losing ones, according to a summary of the paper. In plain words, they held on to losers longer. The paper treats the purchase price as the reference point. That link between anchoring and holding losers is called the disposition effect. (Figures from a secondary summary; I did not open the paper itself.)
This is NetWort arithmetic with made-up numbers, not a real stock.
You own 1,000 shares of a company, bought at Rp2,000. Your cost is Rp2,000,000. The price is now Rp1,200, so your position is worth Rp1,200,000. You are down Rp800,000.
You tell yourself you will wait until Rp2,000. Look at what that needs.
| Starting price | Gain needed to return to Rp2,000 |
|---|---|
| Rp1,200 | +66.7% |
| Rp1,000 | +100% |
| Rp800 | +150% |
At Rp1,200 the stock must rise two thirds just to get you back to even. That is a big ask from a business that is getting weaker. The maths of recovering from a loss is harsher than most people expect.
Now flip the question. If you sell today, you free up Rp1,200,000. You can put it in something you would happily buy today. The Rp800,000 loss is already real whether you sell or not. Selling only makes it visible.
None of this means you should sell every stock that is down. Sometimes holding is right. The point is that your purchase price should not be the reason.
Open the NetWort Dashboard and look at your Portfolio Health score and your biggest losing positions. For each one, ask the fresh-buyer question out loud. If your honest answer is "I'm just waiting to get back to even", you have found an anchor.