Starting today, I’m rereading “Security Analysis.” There’s a passage in the book that quotes behavioral biases discussed by Kahneman in “Thinking, Fast and Slow.”

This passage matches my recent feelings very well.

After buying a stock, the cost basis is easily turned into a psychological anchor. When the stock price drops, you keep thinking about waiting for it to return to the purchase price before selling. Slowly, your focus shifts from whether it’s still worth holding now to when it will finally get me back to break-even.

But the market doesn’t care about my cost basis. By the time I finally can’t take it anymore and cut my losses, my mindset will swing to another extreme. Because I’ve just lost money, I become especially cautious. The positions I used to dare to buy I no longer dare to buy; and when it falls more, I always feel that it will keep falling.

In the end, it becomes very easy to end up stubbornly holding at high levels while not daring to buy at low levels. The first half is anchored by the cost basis, and the second half is influenced by the most recent loss.

I’ve had a very deep experience lately. When I watch my holdings decline step by step, I always think, “I can hold on a bit longer.” But once I truly can’t hold on anymore, I start questioning all buy points and don’t know what level counts as “safe.”

But the past purchase price and the losses that have already happened shouldn’t determine the next step. We still need to revisit the current price, the logic, the position sizing, and the risk-reward ratio.