Do you know, 95% of our purchase decision making takes place subconsciously?
It's actually from a research by Harvard Business School professor Gerald Zaltman.
Logic is slow and we take short cuts to make decisions.
What is Fear Of Missing Out (FOMO)
FOMO is a very real thing and this is a common day example.
Sam is home on Saturday night and quite comfortable to be staying in. Suddenly, his best friend calls her to ask if he want to join the game of poker. Although Sam is tired and perfectly content staying in, the fear of missing out looms large as he doesn’t want to regret not.
What if he wins big? He had been running lucky. This anticipated regret drives Sam to choose to decide to go.
It is no surprise that lucky draws are right to the end of a company dinner and dance. The prospect of potentially winning the big prize keeps everyone from leaving early even the odds are bad.
Fear Of Missing Out (FOMO) in the investing world
Social media has fuelled the spread of FOMO in the investing world.
There are youtube channels sharing investing secrets and facebook ads of investment gurus making it big. What it is more true than not is people putting their good results only and hiding their mistakes.
We wonder why our more diversified portfolio isn’t behaving in a similar fashion.
It is hard to be content with our diversified strategy when we are reminded on how we are missing out on the life changing investment returns if only we had gone all in to that best performing stock. What it is more true than not is people putting their good results only and hiding their mistakes.
When it comes to investing, FOMO is significantly impacted by recency bias. Our fear of missing out becomes more and more intense after the market has just experienced an uptick.
Warren Buffett has this age old saying but who is listening now when GROWTH/TECH is doing so well these days!
Dotcom FOMO and the NEXT AMAZON.COM FOMO!
From 1996 to 2000, the NASDAQ stock index grew from 1,058 to 4,131 points! A STAGGERING 400%!
You must remember, internet was still a "potential then"/ Many of these technology stocks had little to no earnings. Business models were not mature yet.
However, investors feared that if they didn't get in now, the price would get higher!
Many skipped proper analysis on these hot tech stocks to make sure they were sound long term investment for their personal portfolio and goals. It took many years for the average investor to recover.
Then came AMAZON.COM! The king of growth and a business that focuses on the "never ending future profit"!
The company turned only a small profit and did not reward shareholders with dividend like a Microsoft would do.
But the share price kept climbing, grabbing the imagination of many. Skeptics did not like it because of the dot.com lessons.
It was the first time that the investing rules were bent and that dividends and profit were NOT absolutely important! A new blue print that many investors missed!
Soon, many tech firms soon followed the blue print for revenue growth and investors who missed out on AMAZON.COM jumped onboard aggressive tech businesses.
What to do with FOMO
Firstly, be aware that we all "buy on the emotion and rationalise".
If you are aware of it, you'd know that if you bought a tech stock on impulse without studying too much, there is a risk that you'd justify that purchase quickly to yourself. Avoid it and keep a calm investment head.
Secondly, nvestment returns is NOT a competition!
Someone else's performance has nothing to do with you and doesn't change your course.
If we take a couple of steps back, it is clear why we maintain a diversified portfolio – it provides the most appealing tradeoff between maximizing returns and minimizing risk.
Yet, it is hard to remind ourselves of this when it seems like everyone around us is taking advantage of the latest market trends and we are missing out. The latest being TESLA.
If you'd like to understand Should You WAIT To BUY TESLA stock (TSLA)?
Here's Tesla Stock Analysis Done For You! click the video below
Last updated on January 18th, 2021 at 10:15 pm