We had a heated argument with The sexy Victoria Junior College student today because she hurt our ego.She said that after looking at our portfolio of stocks, she thinks it sucks. We, erhem, naturally felt insulted. We explained we bought most of it during the month of October. She countered with saying :” I don’t give a fiddler’s fart when you buy it. Everything has a value.” We, to prevent a further bruised ego, retorted by saying: “ Hey, you little lim kum put of a little girl, who has been monitoring the stock market while you are studying for your A levels. Just look how much prices have corrected! You little prick.” She shouted:” You are just like a cow and anchoring yourself to last years prices!” . With that, she left in a huff! Our egos now badly bruised. We thought we felt a tear on our cheek. And then we realized, we are cows. She is right. In behaviourial finance, one of the fallacies of investors is to suffer from an anchoring effect. The concept of anchoring draws on the tendency to attach or "anchor" our thoughts to a reference point - even though it may have no logical relevance to the decision at hand. For example, some investors invest in the stocks of companies that have fallen considerably in a very short amount of time. In this case, the investor is anchoring on a recent "high" that the stock has achieved and consequently believes that the drop in price provides an opportunity to buy the stock at a discount. See below of an experiment. Taken from a University Research paper: Read more...