What is Price Anchoring?
Price Anchoring is when someone is fixated on a higher, earlier price. “My shares were only worth $5 million, so I waited for the value to get back to $10 million,” is a perfect example from a recent conversation.
A Cautionary Tale
Two weeks ago I ran into Gordon, an old friend, on the street in NYC. We stood on the sidewalk and talked forever about family, what we do for fun, and, of course, careers.
After I mentioned my area of focus, Gordon’s eyes lit up! He told me that he owns shares in his employer. When he was first granted the shares, they were worth $10 million dollars, but he had to wait for them to vest!
Anchoring Bias
When the vesting ended, the shares declined in price and his stake was only worth $5 million – a far cry from the original $10 million. He didn’t sell any shares because he was waiting for the value to increase back to the original amount. He was exhibiting an anchoring bias. Today, the share price is below $1 and his once vast sum of money is worth about $250,000. He still hasn’t sold a single share.
He said that he needs help now and that he needed help when his shares were worth so much more! Gordon confessed that at the time when the shares were worth $5 million he thought he knew what he was doing. He was waiting for the share price to increase back to the higher price and he admitted that he exhibited price anchoring bias.
We had a few discussions and now he is a client. We are going to work through his anchoring bias along with his big financial picture and figure out how to get as much cash in his pocket as possible. He’s still very bitter and upset about what happened to the value of his shares. We can’t go back in time and sell the shares at a higher value, but what we can do is move forward and make the best of the situation.
Don’t Get Stuck Waiting
Do you know anyone who has gone through a similar situation? Maybe you need help with company stock? Perhaps you are riding high with a large chunk of company stock and are exhibiting an anchoring bias while waiting for the shares to return back to their all-time high? This return may never happen.
Don’t be the next Gordon. You can work with a certified financial planner, make better financial decisions, and slip away on the carefree highway. If you or anyone you know needs help with company stock I would love to have a conversation. Please set up a free consultation.