Anchoring and a stock sale

In my previous post, I referred to a situation where I started buying maruti suzuki at 500 and when the price started going up, I hesitated and am still waiting to build a full position.

Although any price between 500-600 would have been good, I still ended up getting fixated with the price of 500 and lost a good opportunity. This bias is called as ‘anchoring’. An individual under the influence of this bias gets stuck or anchored to specific value (in this case a specific price) and does not take a rational decision.

So how should one avoid it ? My antidote to this problem is generally to focus on the intrinsic value and have a range of discounts (40-60%) from intrinsic value at which to do the buying. So if we say that maruti suzuki has an intrinsic value of around 1000-1100 , then any price between 450-600 is a good buying point. So, why didn’t I do it ? hmmm still thinking of a good excuse !.

Another mistake I have done in the past is to wait for the price to hit the 50% mark (50% below intrinsic value) and then start buying. The smarter thing to do, would be to buy in a price range.

A sell
I had anaylsed GSK consumer products a year back and had built a small position in it. However as the price never fell below 50% of my own estimate of intrinsic value, I never built more than a token position. The price crossed my estimates of intrinsic value recently and as a result I have closed my position at a decent gain.

The above idea is another example of anchoring where I got anchored to an exact 50% discount to intrinsic value. Finally, my own convicition about the stock has not been high and hence I could never convince myself to build a full position

Being featured
My blog was recently featured as one of the must read 15 blogs in india. A little publicity never hurts :)

In addition, my articles are now being published on some other sites, which you can see on the side bar under affiliations and a few more.

The affiliation with other sites is non financial. I have been aproached by various sites in the past to syndicate or publish my article and if I find the site to be decent, I have agreed to it.

However I have the following understanding with these and any future websites which may want to publish my posts
- I do not and will not write exclusively for anyone
- I will not promote any site on my blog. I will provide a link if required and the readers are free to navigate to the site and use it if they find it good.
- My articles should be published without editing and with due contribution to me
- Complete freedom on what I write.

So you may find articles from this blog being published at other sites too. However I do not have a business relationship with any of these sites. If that were to happen, I will be open and candid in letting everyone know.