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Beware Anchoring Bias: Top Stocks Now


  • Focus more on businesses and less on anchoring to past prices.
  • Uncertainty is increasing with the S&P 500 in "no man's land."
  • The best sectors across large cap, mid cap, and small cap, plus the top stocks to target now.
  • Looking for a portfolio of ideas like this one? Members of Top Stocks For Tomorrow get exclusive access to our model portfolio. Get started today »

Have you ever found yourself saying a stock is too expensive because it's made a big move in a short period of time? Or that a stock is too cheap to ignore because its price has fallen sharply? Anchoring bias, or the tendency to fixate on a past price when considering a new investment idea, can significantly hold back your returns because it can cause you to avoid top-performing stocks and mistakenly, invest in impaired businesses.

A better option is to focus on businesses, rather than stock prices relative to past price points. Using a system, such as our service, to identify stocks likely to outperform and then, considering if the business itself will enjoy tailwinds or face headwinds can help you pack your watch list with winners.

And this type of stock picking is increasingly important because the SPDR S&P 500 Trust ETF (SPY) is currently trading in no man's land, an area between 5% below and 5% above its 200-day moving average (DMA).

It's at points like this markets can become volatile, more selective, and tougher to decipher as a tug-of-war between buyers who missed the move and sellers that are using resistance to lock in gains develops.

In short, we're in a period of greater uncertainty. The current rally could stall or make another leg higher and good arguments can be made for both.

Economic data is undeniably bad. Many businesses are closing and jobs are permanently disappearing and that could finally trump the monetary and fiscal intervention that's propped the market up the past two months. Alternatively, there's significant pent-up demand from investors who shifted assets into money markets that could propel the S&P 500 higher.

Unfortunately, our long-term overbought/oversold indicator isn't as much help now as it was at March's low or January's peak

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This article was written by

Limelight Alpha provides weekly sector, industry, and stock idea generation to day traders, swing traders, and buy and hold minded investors. Our research spans over 1,600 stocks and our quantitative scoring model has been used by professional investors for nearly 20 years. 

Analyst’s Disclosure: I am/we are long MNST, PYPL, ILMN, DXCM, INSP, VRTX, EA, NFLX, AMZN, CRM, AYX, MDB, NOW, SMAR, TWLO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (3)

TaiPan profile picture
So many private investing clubs, at about $30 per month. Hard to know which ones to subscribe to.

One thing is for sure: if I subscribed to all, I'd quickly go broke.
I think the reminder on anchoring bias is timely and important. It is always important to be self critical of reasons for buying and not buying. I wish I had been able to use this when I was first starting investing. Important to know both why you're buying and why you aren't.
Agree with adastros. Also, good data points provided - thanks for the article.
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