› CFA › CFA Level 3 › READING 13: Concentrated Single-Asset Positions – Example 1

READING 13: Concentrated Single-Asset Positions – Example 1

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    • Avatar of Alta12Alta12
      Participant
        21 Jul 2017 at 3:35 pm
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        Can someone please explain why anchoring and adjustment bias may affect Mrs Bailer’s decision making.

        Thanks.

      • Avatar of Sophie MaconSophie Macon
        Keymaster
          22 Jul 2017 at 7:27 am
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          @alta12 – yes it does, thank you 🙂

          My take is the dividend. A steady historical dividend payout has ‘anchored’ expectations of what may happen in the future.

        • Avatar of Sophie MaconSophie Macon
          Keymaster
            21 Jul 2017 at 10:06 pm
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            @alta12 – can you provide more context to the question? Not all of us have the same reference. Either attaching an image or the entire text would help!

          • Avatar of Alta12Alta12
            Participant
              22 Jul 2017 at 2:54 am
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              Mr B, a former CEO of ABC company. Now retired and no longer on the board of directors. Therefore can freely sell his concentrated portfolio of ABC shares.

              In relation to Mrs B, the following statements are made:
              1) Mrs B remembers that she and Mr B started their married life with negative net worth and their family’s net worth grew over time as ABC stock skyrocketed in value.
              2) Mrs B also realises that for many years, the dividends paid on their ABC stake paid for a good portion of their living expenses.

              The question then ask what emotional and cognitive biases may affect Mrs B. The answer is status quo bias, naive extrapolation of returns and anchoring and adjustment bias. Why anchoring and adjustment bias?

            • Avatar of Alta12Alta12
              Participant
                22 Jul 2017 at 11:34 am
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                @sophie Yes! That makes sense now. Thank you so much!

              • Avatar of RaviVoodaRaviVooda
                Participant
                  • CFA Level 3
                  22 Jul 2017 at 6:02 pm
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                  @Alta12 there can also be a possibility of overconfidence bias, as he is ex CEO and he might think he has more knowledge than other investors

                • Avatar of Sophie MaconSophie Macon
                  Keymaster
                    22 Jul 2017 at 5:15 pm
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                    You’re welcome @Alta12 🙂 Discussions and exchanging views/explanation is what makes this forum tick 🙂

                  • Avatar of Alta12Alta12
                    Participant
                      22 Jul 2017 at 3:02 am
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                      @sophie – does this help?

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