What is Anchoring Bias?
Anchoring is the cognitive habit of fixating on a specific reference number, your purchase price, an all-time high, an analyst price target, and using it to judge whether to buy, hold, or sell, even when that anchor is irrelevant to current fundamentals.
Formula
How to Interpret
'I'll sell once it gets back to my buy price' is the most expensive sentence in investing, the market does not know or care what you paid. Anchoring also drives investors to refuse to buy a stock 'because it's already up 50%' or to buy a falling knife 'because it was $200 last year.' Better framework: each holding decision should be made on forward-looking fundamentals and current price vs intrinsic value, ignoring sunk cost and historical highs.
Typical Ranges
N/A, universal bias. Re-evaluate every position on a fresh basis at least annually.