Every investor knows the feeling of having followed a stock for a while and having considered buying it when all of a sudden the thing takes off and you are left on the dock viewing the boat and its cheerful passengers from afar as it disappears into the sunny horizon while you are beating yourself over the head for missing out on yet another opportunity!
You know that feeling, right?
If so here is why you MUST silence that voice in your head and overcome what could otherwise end up eating away at your life savings:
- That voice is a liar. You would have bought the stock if you had thought it sufficiently attractive. There always is a reason why you didn’t act – most often a very good one. Perhaps you hadn’t put in enough work to understand the company sufficiently, which again is a reason why you could not and should not buy it.
- Remember all the bombs and mines you avoided over time due to craving large enough margins of safety. Don’t give in – stay on the path!
- If the stock went up based on positive unexpected news flow then it isn’t the same stock any more and therefore it is irrational to have any attachment to what once was. It’s simply a different situation from the one you considered before the news broke. Analyze anew, carefully and deliberately and without haste. Mistrust any bodily reaction compelling you to jump onboard. Detach!
- Recognize the danger of hunting the next hot thing that has left people disconnected from their rational selves in a blind hunt for quick profits. One word: Refrain. Fundamentals are what drives prices over the long haul – and they usually come down after the time of exuberance is over. Remember Warren Buffett’s quote: “The market is a device for transferring money from the impatient to the patient.”
- You want to always be in a calm state of mind when considering financial actions. Fear of missing out (FOMO) takes you out of that state and into caveman territory where the amygdala and fear and greed rules. When fear or greed has become rampant in the market you want to be an observer as opposed to a participant – and generally opt for the opposite side.
- In the history of the markets FOMO is the single biggest contributing factor to bubbles. If you can manage to stay away from those you probably won’t get rich quick but you will live to fight another day when drowning is taking place all around you. In the markets not losing is more important than winning – unlike in life! You won’t die if your neighbour gets the prize and you don’t. Deal with it!
- Recognize FOMO as the biggest monster in the market and as a crusher of souls. It may not have devoured your savings yet – your gambles may even have paid off handsomely a few times and lured you into thinking it is a viable strategy – but if you don’t actively keep FOMO a bay, one day the odds are it will devour you cold-bloodedly. Therefore: A day without FOMO in our lives is a day worth celebrating!
- Finally, and most importantly: There are tons of boats in the ocean arriving at our shores every year (and by the way, having enough dry powder is also such a boat: the optionality of cash). The best counter to FOMO is to put in the work and dig up enough cases with enough margin of safety so that you can wave goodbye to all of those boats that you will miss with no feelings of regret – and to do so with a smile knowing that yet again you conquered the mighty enemy that is FOMO!
Much of this is easier said than done. And no, I don’t have it down completely myself. But in the words of JFK:
We choose to go to the moon. Not because it is easy but because it is hard!