r/stocks May 6, 01:17 AM
Anchoring Bias. Why is it so hard to buy GOOGL & AMZN at all time highs? Why do we chase 10x underdogs over proven winners with 1x upside? We all know the feeling. You’re staring at a stock chart that looks like a staircase going straight up. Your own research, conviction, and common sense tell you the company is a proven winner with a highly probable 1x to 2x upside. Yet, your finger freezes over the "buy" button. Instead, you go hunting for some beaten down, speculative "underdog" hoping for a lottery ticket 10x return.
Why is it almost impossible for investors to buy stocks that have run up significantly, even when their own conviction tells them there’s plenty of room left to grow?
Let’s talk about the elephant in the room: Anchoring Bias and the overwhelming fear of feeling stupid.
Take GOOGL as the perfect example right now. The stock has more than doubled since last year. We all saw it dip hard down to around $270 during the recent Iran war tensions, a solid 20% correction. But now, after the latest earnings, the outlook is clearer than ever. The existential threat to the Search business didn't pan out the way the bears warned, and their Cloud division and Other Bets (like Waymo, SpaceX & Anthropic) are getting massive traction. It looks like it is on a clear path to becoming the first $10 Trillion company by 2030, or maybe even sooner.
I know so many people who genuinely believe this $10 Trillion thesis. That implies a roughly 1x (100%) upside from where we are right now. But they still refuse to pull the trigger.
Why? Because the psychological pain of "buying the top" and potentially looking foolish is stronger than the desire to double their money based on their own rational thesis. They are anchored to past prices.
When you break it down, there seem to be three distinct classes of investors sitting on the sidelines right now:
One group believed search was threatened by the rise of ChatGPT. As it slowly became clear that wasn't the case, they refused to admit they were wrong and never bought the stock. A second group was able to accept they were wrong about search , they were bullish on TPUs, cloud, YouTube and other bets but didn’t want to buy at all time highs. The stock kept ripping while they watched from the sidelines. Then there are the regretful early sellers. They trimmed their winner for no reason other than to book profit, searching for better risk/reward ratios instead of letting their winners run.
It’s fascinating, honestly. The desire to "not feel stupid" actively forces people to make mathematically and logically poorer decisions. And it’s not just Google. You see the exact same psychological trap playing out with AMZN, SMH, MU, INTC, DRAM and so many other stocks. No one wants to buy stock for just 1x upside left.
The truth is, most investors, and even professional money managers stare obsessively at YTD, 1 year, 3 year, and 5 year price graphs before making a move. They look at the steepness of those historic curves, or they fixate on the exact price they last sold the stock for, and they fall right back into different flavors of anchoring bias.