Anchoring

Suppose a stock you own once traded at a high price. Months later it has fallen hard. The company's prospects have changed. But in your head, that old high price is still "what it's really worth."

That is anchoring. You hold on to information from the past and let it steer a decision in the present, even though the present has moved on.

It shows up most often as refusing to sell a losing investment. The investor is waiting for the price to "come back" to a level that the current facts no longer support.

The workbook places anchoring in a short list of behavioural biases that affect retirement portfolios, and defines it precisely: "Anchoring is when investors hold on to some information that may no longer be relevant, and make their decisions based on that."

Its named example is holding on to losing stocks in expectation of the price regaining levels that are no longer viable given current information. The bias directly risks the retirement corpus, because capital stays parked in an underperforming asset instead of being redeployed.

The workbook lists anchoring alongside three related but distinct biases: optimism or confidence bias (overrating one's own ability to beat the market), familiarity bias (favouring assets one is comfortable with over what the goal actually needs), herd mentality (following what other investors do), and recency bias (extrapolating a recent event, good or bad, into the future). The suggested defence against all of them is the same: focus on data, automate investing and reviewing on a schedule, and use contrarian strategies such as value investing to resist the pull.

Illustrative example (the workbook gives the concept without a rupee figure). Mr Sharma bought shares at Rs 500 each. Weak results push the price down to Rs 300. The business has genuinely weakened — margins have fallen and a competitor has taken market share.

Mr Sharma refuses to sell. In his mind, Rs 500 is still the "real" value of the stock, and he is simply waiting for it to "come back." Two years later the stock is at Rs 220 and he has missed several opportunities to redeploy that capital into better-performing assets ahead of retirement. The anchor was Rs 500 — a number from the past that the current facts no longer support.

Chapter 3, section 3.7 (Behavioural Bias in Decision Making), lists anchoring among five biases in a single paragraph. Expect scenario questions that describe an investor's behaviour and ask which bias it illustrates — the discriminator is almost always whether the investor is fixated on old information (anchoring) or something else (comfort, imitation, or recent events).

• Anchoring is not familiarity bias. Anchoring is about clinging to an old number or fact; familiarity bias is about preferring what one knows, regardless of any specific past figure.
• Anchoring is not herd mentality or recency bias. Those two are about copying others or overweighting the very latest event — anchoring can persist for years after the anchor stopped being true.
• The workbook's cure is process, not willpower: automated, scheduled investing and review reduce the chance of an anchor driving a decision in the first place.