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The 52-week high

- May 26, 2009

No, it’s not a new street drug. It’s an anchoring phenomenon in the mergers-and-acquisitions gig that could be kicking in with special force in the next few months.

Remember when Microsoft was trying to take over Yahoo!? The Yahoos held out for a better price per share, looking back fondly to the highest price Yahoo! stock had reached during the past year and wanting at least that much for their shares. The deal fell through (and the Yahoo! stock is now selling at a fraction of what Microsoft offered). Anyway, some new research featured in today’s Wall Street Journal suggests that the 52-week high is often used as a psychological anchor in assessing how lucrative an offer is — yet another example of the sort of “anchoring” effects that are often reported in research on political attitudes.

Here’s the kicker: We’re now coming up on a year since stock prices went into the dumpster, so 52-week highs are about to take a nosedive. This is likely to have a substantial effect on how both buyers and sellers view proposed transactions, as the anchor is about to drop well below its previous level. How is this going to play out? My financial crystal ball is as cloudy as ever (“Buy high, sell low” has always been my mantra), but the best bet would be that some deals are going to be getting done at much lower prices once the recession-period 52-week highs begin to kick in.