On Anchoring

Investment Analysis Clubs Saul’s Investing Discussions
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I often hear people reluctant to add to a stock because it had been lower in the past. It’s amazing how often I hear people say that they are “waiting for a better value point”, “waiting for a pull-back”, “waiting to buy it lower” etc. In the Knowledgebase I used the following example (I didn’t use the actual stock symbol to keep it general and useful indefinitely):

I recently added to my XXX even though it had run up considerably from my initial purchases. I had initially bought at $16, but I added a lot more at $22. Should I have hesitated because it had been cheaper a few months ago? Should I have berated myself because I didn’t buy more then? And maybe decided to wait and see if it would sell off so I could get some cheap? No way! Its last five quarterly earnings were (in cents), 13, 22, 28, 32, and recently announced, 46! They are growing trailing earnings by over 100% and have a trailing PE of 15.6. I’m buying them at the price they are available NOW.

Well this was three months ago and the stock, of course, was INBK. I added a lot to my position at $22 (as I noted), then more at $23.75 and $24.00 in spite of the fact that it had shot up from $17. Who would have dreamt that it would now be at $36, only three months later? That’s why I add to winners and get out of UBNT type situations, and reinvest the proceeds. Oh, I’ll take a bargain on a winning company if I get it, as I did on BOFI some months ago, and on SWKS recently, but I don’t wait around looking for stocks to go down so I can buy them. I started buying ABMD five weeks ago at $65 and I continued buying even up to $89 after it shot up after earnings. It’s now at $95.70.

Just saying.

Saul

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please go to Post #9939.

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Saul-

Thanks for your thoughts. I’d like to add that I reviewed and analysed several stocks being discussed on this board, making initial purchases just about a month ago, making some additional purchases since then. I’m up 34% in SKX, 27% in INBK, and 24% in BOFI. I’m off about 10% in CRTO…I agree that waiting can be expensive.

Gary

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I’m guilty of anchoring on both the buy side and sell side many times. Almost every time it has had a detrimental effect on performance. I used to have the mind set of I like XYZ and want in but I could get it a few % cheaper. Man wouldn’t I feel smart then. But this goes against the logic of wanting to buy XYZ in the first place. If think it will go up from here at $X a share, there is no reason not to buy. Waiting for a better price just implies that I don’t think it will go up from here.

My sell side anchoring has mostly been not wanting to realize losses. Hmmm, ABC is down 30% I think my thesis is flawed. But if I can recoup some on an uptick with a bit of good news it won’t feel so bad and man would I feel smart again. Oh hey I’ll also collect the next dividend in a few weeks too, man I’ll be double smart. This of course brought more losses. I thought ABC was going down from $X a share. Waiting for it to go up implied the opposite and I paid a price for my indecisiveness.

My most memorable buy anchor was TSLA. I forget the exact numbers but I had placed a good for 6 months limit order in around $32 after seeing it bounce there a few times on a recent chart. It bounced between $34 and $37 for a few months and then took off. Then it cooled off in the $70 or $80 range and I did it again. That few dollars a share at either price point would have made zero difference.

Ray

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