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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Behavioural Finance in Practice

A client who has watched her equity portfolio fall sharply refuses to sell a stock bought at Rs 500, now trading at Rs 350, saying she will sell only when it returns to Rs 500. Which bias is she primarily displaying?

She is showing anchoring to her purchase price along with loss aversion. Her sale decision depends on getting back to Rs 500 and she avoids realising the loss, rather than judging the stock on its present prospects, which is the typical disposition-type behaviour.

  1. AAnchoring to the purchase price combined with loss aversionCorrect
  2. BOverconfidence about her stock-picking skill
  3. CRecency bias towards the latest good news
  4. DHerding with other investors

Explanation

Her decision is fixed on the purchase price of Rs 500 (anchor) and she avoids realising a loss (loss aversion). Overconfidence concerns belief in own ability, recency concerns over-weighting recent events, and herding concerns copying others; none is described here.

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