One of the most dangerous traps an investor can fall into during a bear market is anchoring. You might find yourself saying something like: "My stock is down 60%; it's so cheap!" Here's the problem with that line of reasoning: It assumes that the peak is the "correct" price. In reality, no one knows what the "correct" price is. Sometimes a stock collapses and never recovers. Sometimes it takes many years for it to claw its way back.

There's nothing stopping a stock that's fallen 60% from falling another 60%. The stock market doesn't care what your cost basis is. It doesn't care about what happened in the past. What matters is the future. Combine dimming growth prospects with a frothy valuation, and you have the recipe for a nasty decline that would have been unthinkable when new all-time highs were being carved out daily.

NVIDIA (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD), two semiconductor stocks that were soaring until late 2021, have seen much of those gains come undone as chip shortages have given way to chip gluts. Both stocks are down around 60% from their all-time highs.

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Source Fool.com