A big problem that afflicts most investors is the notion of "anchoring."

"Anchoring" is when you base decisions on the past. In other words, your decision-making process is "anchored" to something that has happened to you.

For example, right now many investors are holding technology stocks simply because these stocks once traded at much higher levels than today. In essence, investors are "anchored" to the fact that these stocks traded at triple-digit price tags and could possibly return to those levels someday. Such investors base the future on the past.

The problem with anchoring is that the past is, well, the past. There is no assurance or any real reason why the future will look like the past, especially when it comes to stocks. Just because XYZ.COM traded for $125 and now trades for $1 doesn't make it a good stock going forward.

Unfortunately, I talk to investors all of the time who have anchored portfolio decisions to the past. These people are concerned about selling stocks and locking up paper profits. They bought Cisco at $80 and can't possibly sell at $18 because, well, the stock once traded for $80.

Now I'm not saying whether someone should buy or sell Cisco - for the record, I own the stock and am going to hold on to it - but I do believe that anchoring your thinking about a stock based solely on the stock's trading history is a huge mistake.

Bottom line: Look to the future, not the past. You cannot drive a car looking out the rearview mirror. Similarly, you cannot manage a portfolio looking at past prices of your holdings. It is only the future the matters, not the past. Smart investors look at each of their portfolio holdings and decide to hold or sell based on how they see the world going forward.

You need to do the same.

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