Anchoring and Mental Accounting

You paid ₹1,000 for a stock. It is now ₹700. Your brain is not evaluating whether to hold it — it is asking how to get back to ₹1,000. That compulsion is anchoring, and it is costing you money.

Why This Matters

Anchoring is the tendency to rely too heavily on the first piece of information encountered when making decisions. In investing, the most common anchors are purchase prices, 52-week highs, and analyst price targets. None of these numbers have any logical relationship to what a stock is worth today — but all of them powerfully influence investor behaviour. Mental accounting is the related tendency to treat money differently depending on how it was earned, where it is held, or what it is mentally earmarked for.