Don’t fall into anchoring thinking traps! The fatal misconceptions of “buying the dip” in stocks

1. The essence of anchoring thinking: You think a stock is cheap, but it may not really be cheap—it’s only cheaper than its earlier price. For example, if a stock rises from 20 to 80, you think it’s expensive; but if it then climbs to 200 and later falls back to 80, you’ll think “it’s cheap now,” even though its actual value may never have reached that level.
2. The valuation anchoring trap: The same applies to the P/E ratio. A 20x P/E wasn’t seen as undervalued at first. But if it’s pushed to 100x and then falls to 40x, many people start to think “the valuation is low.” Yet a 40x P/E is still far above a reasonable level.
3. A real case from Haitian Flavor: Back when Haitian’s market cap was under 1,000 hundred million (under 100B) and its P/E was over 20x, no one thought it was undervalued. Later, after it was hype-rallied to 700 billion and a 100x P/E, retail investors didn’t dare to chase. By the time it dropped to 300–400 billion and a 50x P/E, retail investors were疯狂抄底—only for the stock price to fall another half. This is how anchoring psychology wreaks havoc.
4. The correct investment logic: Judge a company’s value—don’t compare it to historical stock prices or past valuations. Focus on how much return it can generate on its own: its current and future dividend capacity and core value—not “it’s cheaper than before,” which leads to blind buying.
5. A warning for tech cycles: After this round of the tech bubble bursts, most trapped investors weren’t the ones who chased highs—they “bought the dip” instead. They used historical peak prices as the anchor, thinking that once it drops it must be an opportunity, while ignoring the asset’s actual value.