Anchor TrapView Financial Glossary Index
The tendency to value an asset, such as a stock, based on its historical value rather than its current price. One of a group of Behavioral Financial Biases that can cloud investors’ judgment. Anchor Trap manifests itself frequently as a condition known as Get-Back-Itis, in which an investor won’t sell a stock until it gets back to the price he or she paid; or, frequently, to the stock’s high point, which the investor has come to regard as the stock’s true value. This can lead to holding onto losers and stocks known as dead money. Had our anchor-trapped investor bought Cisco (CSCO) stock in early 2000, and decided to wait for that purchase price to sell, it would be a long sit. There’s a relationship here, it seems, to Loss Aversion.