Anchoring bias is the tendency to lean too heavily on an initial reference point when making a judgment — even when that reference point has no real bearing on the decision at hand. A classic psychology experiment by Kahneman and Tversky demonstrated this in a startling way: participants were shown a spinning wheel rigged to land on either a low or high number (completely random and disconnected from the actual question), then asked to estimate something unrelated, like the percentage of African countries in the United Nations. Remarkably, people who saw the high number on the wheel gave systematically higher estimates than people who saw the low number — an obviously arbitrary, irrelevant number still measurably shifted their thinking.
In investing, the most common anchor by far is a stock's purchase price. Once you've bought a stock at a specific price, that number tends to become a mental reference point for every future decision — is the stock "up" or "down"? — even though the company's actual future prospects have absolutely nothing to do with what you personally happened to pay for it. A stock's 52-week high works the same way: "it's down 40% from its highs" can feel like meaningful evidence of a bargain, when that old high may simply be an outdated number from before conditions genuinely changed.
Correct moves you up, wrong moves you down — reach 100 to master this lesson.