TOL - 23rd Apr, 2026
7 deadly sins of investing: The anchor you don't know you've dropped
Your brain lies to you about prices, and it's probably costing you money!
Add us as a preferred Google source
Anchoring is one of the most pervasive wealth-eroding behavioural biases in investing. It’s our tendency to latch onto an arbitrary starting point and let it shape our decisions, even when it has no relevance to the future.
It shows up everywhere.
How often do you hear an investor say they’ll only sell a losing position once it “gets back to their entry price”? That purchase price feels important, but in reality, it has precisely zero bearing on where the stock goes next.
The $100 bottle of wine
One of the more elegant demonstrations of anchoring comes from wine tasting experiments. Give two groups the exact same wine, but tell one group it costs $100 and the other $10.
Consistently, the “$100 group” reports a far superior experience, describing the wine as “complex”, “layered”, even “exceptional”, while the $10 group calls it “average” and “uninspiring”.
It gets better. Brain scans show greater pleasure activation when people believe they’re drinking the expensive bottle. The anchor doesn’t just influence opinion, it changes the experience itself.
Incidentally, I remember watching the Wallabies at Stade de France, working my way through a heroic number of Heinekens and feeling convincingly tipsy, only to discover afterwards that I’d been drinking non-alcoholic beer in a dry stadium.
Proof, if any were needed, that the mind is easily anchored.
.jpg,https://www.livewiremarkets.com/rails/active_storage/representations/proxy/eyJfcmFpbHMiOnsibWVzc2FnZSI6IkJBaHBBN0FPRGc9PSIsImV4cCI6bnVsbCwicHVyIjoiYmxvYl9pZCJ9fQ==--4f509ad714bcbde4933a9437e07f62bee4f426b7/eyJfcmFpbHMiOnsibWVzc2FnZSI6IkJBaDdCem9MWm05eWJXRjBPZ2wzWldKd09oTnlaWE5wZW1WZmRHOWZabWxzYkZzSGFRSmtBbWtDV0FFPSIsImV4cCI6bnVsbCwicHVyIjoidmFyaWF0aW9uIn19--dbcf8d7b6290376ca515990a95f79dcba96deb5c/ROI_25_Dr-David-Allen_primary%20(1).jpg)
Equities
David Allen reveals the systematic playbook behind Plato’s 25 percent returns
View
A humbling lesson in Shenzhen
I once thought I understood anchoring while negotiating in Shenzhen.
An item was advertised at ¥100. I offered ¥50, deliberately trying to reset the anchor lower. After a long back-and-forth, we settled at ¥70. I walked away feeling like I’d done well.
Moments later, a local buyer approached the same stall, opened at what seemed like an absurd ¥5, and settled at ¥21.
Same product. Same seller. Completely different anchor.
Even meaningless numbers matter
The classic experiment by Daniel Kahneman and Amos Tversky (1974) shows just how deep this bias runs.
Participants spun a rigged “wheel of fortune” that landed on either 10 or 65. They were then asked a completely unrelated question: what percentage of African countries are members of the United Nations?
Those who spun 10 gave significantly lower estimates than those who spun 65.
The number was random, irrelevant, and obviously meaningless. Yet it anchored their thinking.
Trends in sell-side stock earnings revisions
One of the most fascinating examples of anchoring appears in sell-side earnings forecasts. Rather than fully incorporating new information immediately, analysts tend to adjust their forecasts gradually, anchoring on their prior estimate and only slowly moving away from it over time.
Why does this happen? Partly it’s behavioural, partly institutional. Large forecast changes risk undermining an analyst’s credibility - they are, in effect, an admission that the previous estimate was wrong.
At the same time, analysts often wait for confirmation from their peers, creating a “safety in numbers” dynamic that reinforces herding behaviour.
The result is a clear statistical signature. If forecasts were fully efficient, the direction of revisions would be no better than a coin toss.
In reality, revisions exhibit persistence: when an analyst upgrades their forecast, the next revision is significantly more likely to be an upgrade as well (63% probability). In other words, revisions have momentum.
This seemingly small inefficiency has powerful implications. A simple strategy that buys companies experiencing positive earnings revisions, and avoids those with negative revisions, has historically outperformed, as the market slowly catches up with information that analysts themselves incorporate only gradually.
Where we’re seeing it today
In the Australian market, names such as Santos ASX: STO, Hub 24 ASX: HUB, QBE Insurance ASX: QBE, Mineral Resources ASX: MIN , and Sandfire Resources ASX: SFR currently screen strongly on our earnings revisions models.
Whether they continue to do so will depend on one thing: how quickly analysts are forced to abandon their current anchors.
Catch up with Plato Investment Management's 7 Deadly Sins of Investing Series
Anchoring is the 6th 'deadly sin' in Plato's 2026 investor notes series. If you missed the previous sins, click below.
Deadly Sin #1: Overconfidence
Deadly Sin #2: Hot-hand fallacy
Deadly Sin #3: Loss aversion
Deadly Sin #4: Base-rate fallacy
Deadly Sin #5: Confirmation bias
ETF
Plato Global Alpha Complex ETF (PGA1)
Global Shares
View
Managed Fund
Plato Global Alpha Fund
Global Shares
View
Managed Fund
Plato Global Shares Income Fund
Global Shares
View
Managed Fund
Plato Australian Shares Income Fund
Australian Shares
View
Never miss an update
Enjoy this wire? Hit the ‘like’ button to let us know.
Stay up to date with my current content by
following me below and you’ll be notified every time I post a wire
David has more than two decades’ experience investing in global equities. Prior to joining Plato Investment Management he worked for JP Morgan Asset Management in London for fifteen years becoming one of the youngest managing directors in the firm’s history. He managed the JP Morgan Europe Equity Plus active-extension fund which was closed to new investors after growing to €6 billion, generating 4% p.a. net alpha over ten years. He also launched and managed the JP Morgan Europe Equity Absolute Alpha Market Neutral fund. In its first twelve months of operation, the fund returned over 20%, and grew assets to €1 bn. In 2014 he was the European Hedge Fund Manager of the Year (UCITS).
........
This communication is prepared by Plato Investment Management Limited (‘Plato’) (ABN 77 120 730 136, AFSL 504616) as the investment manager of the Plato Global Alpha Fund (ARSN 654 914 048) (‘the Fund’). Pinnacle Fund Services Limited (‘PFSL’) (ABN 29 082 494 362, AFSL 238371) is the product issuer of the Fund. PFSL is not licensed to provide financial product advice. PFSL is a wholly-owned subsidiary of the Pinnacle Investment Management Group Limited (‘Pinnacle’) (ABN 22 100 325 184). The Product Disclosure Statement (‘PDS’) and Target Market Determination (‘TMD’) of the Fund are available via the links below. Any potential investor should consider the PDS and TMD before deciding whether to acquire, or continue to hold units in, the Fund.
Link to the Product Disclosure Statement
Link to the Target Market Determination
For historic TMD’s please contact Pinnacle client service Phone 1300 010 311 or Email [email protected]
This communication is for general information only. It is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should obtain professional advice before doing so. Past performance is for illustrative purposes only and is not indicative of future performance.
Whilst Plato, PFSL and Pinnacle believe the information contained in this communication is reliable, no warranty is given as to its accuracy, reliability or completeness and persons relying on this information do so at their own risk. Subject to any liability which cannot be excluded under the relevant laws, Plato, PFSL and Pinnacle disclaim all liability to any person relying on the information contained in this communication in respect of any loss or damage (including consequential loss or damage), however caused, which may be suffered or arise directly or indirectly in respect of such information. This disclaimer extends to any entity that may distribute this communication.
Any opinions and forecasts reflect the judgment and assumptions of Plato and its representatives on the basis of information available as at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future.
Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this communication is prohibited without obtaining prior written permission from Plato. Pinnacle and its associates may have interests in financial products and may receive fees from companies referred to during this communication.
1 topic
6 stocks mentioned
4 funds mentioned
David has more than two decades’ experience investing in global equities. Prior to joining Plato Investment Management he worked for JP Morgan Asset Management in London for fifteen years becoming one of the youngest managing directors in the...
Expertise
David has more than two decades’ experience investing in global equities. Prior to joining Plato Investment Management he worked for JP Morgan Asset Management in London for fifteen years becoming one of the youngest managing directors in the...
Expertise
Comments
Comments
Sign In or Join Free to comment
