Reference Points
Consider an investor who buys a stock for $100 and sees it rise to $150 at the end of the year. The following year, the stock closes at $125. Whether the investor is likely to interpret the investment as a gain or loss depends on the reference point used. In general, investors tend to use relatively recent reference points, with some research indicating that investors favor the 52-week high. This theory is supported by a study showing that employee stock option exercises nearly doubles when the stock rises past the previous 52-week high.
Source: Psychology of Investing, The (2nd Edition)
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
