Mumabi: First, a quick question. Take the last three digits of your telephone number, and add 400 to it. For example, if your telephone number ends in 146, adding 400 to it will give you the answer 546. Now answer- In which year did Alexander invade India? Even though your telephone number has nothing to do with ancient India's battles, you will note that your answer to the above question would most likely revolve around the first number i.e., 546. And that's just a hypothetical number. Whatever number you come up with for the sum of the last three digits of your telephone number and 400, your guess for the year of Alexander's invasion will be close to your sum. Since you might have a biased answer to this question now having read it, you can try this exercise on anyone else. You'll be amazed at the results. By the way, the answer to the above question is 326 BC. Psychologists call this process as 'anchoring and adjustment', or simply 'anchoring'. What this means is that as soon as our intuition gets fixated with a number - and that can be any number - it sticks with us. Most of our decision-making errors result from mental shortcuts that are a normal part of the way we think. The brain uses mental shortcuts to simplify the very complex tasks of information processing and decision-making. Anchoring is the psychologists' term for one shortcut the brain uses. The brain approaches complex problems by selecting an initial reference point (the anchor) and making small changes as additional information is received and processed. Anchoring and investing Anchoring influences all kinds of purchases. And investing in stocks is no different. In fact, anchoring is everywhere in the financial world, and you can't be fully on guard against it until you understand why it works so powerfully. One prominent example of anchoring in the field of investments is when investors think that a stock priced at 25 is cheaper than a stock priced at 500. In reality, the first stock might have 10,000 stocks outstanding in the market that will bring its total market capitalization to 250,000. On the other hand, the number of outstanding shares of the second stock might be much lower at 100, which will bring its market cap to 50,000, or just 20 percent of the first stock. If the two stocks belong to businesses of same size and quality, the first stock is indeed five times expensive than the second stock based on everything - earnings, assets, cash. Similarly, a stock does not get necessarily cheap when it hits its 52-week low (although it may be a good place to look for value). After all, a stock that is down 95 percent first fell 90 percent and then another 50 percent from there! Then, it might be a bad decision to sell a stock just because it hit its all-time-high. All 10 or 20 baggers (stocks that multiple 10 or 20 times) must have touched their all-time-highs much earlier before becoming 10 or 20 baggers. You need to compare the stock price to the company's intrinsic value, and only then judge whether it is cheap or expensive. In effect, you need to anchor to the intrinsic value and not the stock price. See, we all need anchors in life (like a stock's intrinsic value), but we must get the right ones to avoid sinking. The author is Vishal Khandelwal, promoter of Safal Niveshak. Vishal, with his vast experience as a stock market analyst trains people to become sensible and successful investors. You can read his articles and reach him through https://www.safalniveshak.com/