Almost every investor, both amateur and professional, falls into the trap of anchoring.
That's the psychological phenomenon of thinking something will happen in the future because of something unrelated occurring in the past.
So if a stock was once $20 and has now fallen to $2, one might think it's a bargain. Because in the past it showed it can be much higher.
But this is false logic because ASX shares have no memory.
Stocks don't care if they were $20 six months ago. The only thing that matters for the share price is the current and future performance and sentiment.
This trap works the other way too.
If you see an ASX share that's rocketed up 50% over the past 12 months, you might think you've missed the boat.
But that's also anchoring. Because what happens to that stock from here is completely unrelated to what the price was worth a year ago.
Sequoia senior wealth manager Peter Day this week named a couple of ASX shares that fit that description. They have both soared about 50%, but are still representing great buys.
And now that you are aware of the cognitive trap to avoid, you know that all you need to consider is the future of these businesses.
'Strong cash flows' expected from ASX resources share
The market anticipates positive news from metals miner South32 Ltd (ASX: S32) when it reports its financials on Thursday.
"We're expecting solid full year results to be driven by a strong performance from its coal division," Day told The Bull.
"On our forecasts, South32 is expected to generate strong cash flows in the near term, supporting additional shareholder returns and growth."
Not only has the share price risen 46% over the past 12 months, it's returned 22% since 19 July.
South32 also gives back a nice dividend yield of 4%.
Day's recommendation is well supported by his peers.
According to CMC Markets, 14 out of 20 analysts are rating South32 shares as a buy, with 13 of them convinced it's a strong buy.
Margin income rockets 74%
Computershare Limited (ASX: CPU) shares have enjoyed a cruisy 50.7% rise over the past year due to the company's penchant for better earnings when interest rates head up.
This is because the share registry provider holds cash that it's yet to pay out to investors, which it temporarily invests. All the returns go straight to its coffers.
Computershare reported its results earlier this month.
"This financial administration company reported management revenue of $2.6 billion in full year 2022, up 12.2% on the corresponding period," said Day.
"Margin income of $186.5 million was up 74.3%. The company has a strong balance sheet."
He acknowledged how strong the stock has been over the last 12 months.
"We retain our outperform recommendation."
Other professionals also love Computershare, with 10 out of 14 analysts rating the stock as a buy on CMC Markets.
