Anchoring bias is the habit of locking onto one number, usually the price you paid for a stock, its 52-week high, or the size of your very first investment, and judging everything that happens afterward against that number instead of against what the investment is actually worth today. It shows up as refusing to sell a stock for less than you paid, waiting for a position to "get back to even" before cutting a loss that keeps getting worse, or never raising how much you invest each month because the dollar amount from your first-ever trade quietly became the ceiling. A 2024 study of more than 150,000 app-based brokerage accounts found that 19% of all stock purchases matched the exact dollar size of the investor's very first trade, sometimes years later.
What Is Anchoring Bias, in Plain English?
Anchoring bias is a mental shortcut where the first number you're given becomes the reference point for every judgment that follows, even when that number is random and has nothing to do with the real answer. The effect was first documented by psychologists Amos Tversky and Daniel Kahneman in a 1974 study published in Science. Participants watched a wheel of fortune, rigged to stop on either 10 or 65, then were asked to estimate what percentage of countries in the United Nations were African. People who saw the wheel land on 10 guessed a median of 25%. People who saw it land on 65 guessed a median of 45%. The wheel had zero connection to the real answer, yet it still moved people's estimates by 20 percentage points. Investing works the same way: a price, a percentage, or a dollar figure you happened to see first can quietly set the baseline for a decision that should have nothing to do with it.
Why Do You Judge a Stock by the Price You Paid for It?
Because the purchase price becomes your personal anchor, and anything below it feels like an unresolved loss, even though the market has no memory of what you paid and doesn't price the stock based on your cost basis. Academic research on the "52-week high effect" finds the same anchoring pattern on a market-wide scale: stocks trading near their 52-week high tend to keep drifting upward afterward, because investors underreact to good news once a price is close to that old high, treating it as a ceiling instead of just a number. Studies tracking actual order flow have found that households disproportionately place limit sell orders exactly at a stock's prior 52-week high, a pattern researchers attribute directly to anchoring rather than any real valuation signal. Institutional investors, who often take the other side of those trades, come out ahead specifically because retail anchoring is predictable enough to trade against.
Why Does Your First Trade Amount Follow You for Years?
Because the size of your very first investment sets an invisible benchmark for every contribution you make afterward, and most people's contributions quietly cluster around that first number instead of scaling up with their income. A 2024 study published in the Journal of Behavioral Finance, "Start Small and Stay Small: Anchoring in App-Based Investing" by Itzkowitz, Itzkowitz, and Schwartz, examined more than 150,000 app-based brokerage accounts and found that 19% of all later stock purchases matched the exact dollar value of the investor's first trade. The researchers estimated that each extra dollar in that first purchase was associated with roughly $4.63 more in total contributions over the following year. Put a real number on it: an investor whose first trade was $500 instead of $50 is associated, by that same estimated relationship, with about $450 × $4.63, or roughly $2,083 more invested over the next year alone, not because they necessarily had more money to invest, but because their anchor was set higher from day one. Correlation isn't causation here, the study can't prove a bigger first trade directly causes the extra investing, but the pattern held across men and women, every age group, and every region of the country, which is hard to explain any other way. The effect was consistent whether the account belonged to a 22-year-old or a 62-year-old.
How Do You Actually Break an Anchor Once It's Set?
- Judge a holding by today's case, not your cost basis. Ask "would I buy this at this price today, knowing what I know now," not "will this get back to what I paid." Those are different questions with different answers.
- Automate contribution increases on a schedule, like bumping your investing amount every time you get a raise, instead of leaving the number anchored to whatever you happened to start with.
- Start bigger than feels comfortable on your first trade if you can. The research above suggests the first number you invest, not your income or your goals, is what tends to anchor every contribution that follows.
- Set a fixed review date, like once a quarter, to reassess every position based on its current fundamentals and outlook, not the price you originally paid for it.
- Write your cost basis down somewhere you won't see it daily. Most brokerage apps display your unrealized gain or loss front and center, which keeps the anchor visible and the bias active every time you check your balance.
This bias has a close cousin worth knowing about too: our breakdown of the disposition effect covers the specific, costly habit of holding losing stocks too long while selling winners too early, which is often anchoring to your purchase price in action. And if you're curious how a mirror-image bias drives people to chase trades instead of avoid them, see our piece on what loss aversion actually costs you. If anchoring on a small first deposit is holding your own investing back and you're in Canada looking for a straightforward app-based platform to start with a more meaningful number, see our Resources page for the one investing platform we currently recommend.
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Spicy Investing