One of the greatest obstacles that any investor will face is FOMO (fear of missing out). At one point or another, FOMO will happen and that will lead an investor to take actions they normally wouldn’t do. Sometimes, it ends well, but other times it doesn’t and might even scar an investor from investing ever again.
FOMO is something that no investors can avoid. So, instead of avoiding FOMO, you need to learn to overcome it when it happens. This leads to the topic of this post, where I’ll share 3 ways to how you can overcome investing FOMO.
What Is FOMO
FOMO stands for fear of missing out. As the term suggests, you experience FOMO when you think there is something you’re missing out on (i.e. a hot stock that ran up a lot). According to Huffpost:
In behavioral economics, and decision theory, the psychology behind FOMO can be partially explained by loss aversion. Amos Tversky and Daniel Kahneman demonstrated people’s strong tendency to want to avoid any losses. In fact, the research suggests that losses are twice as impactful on people, psychologically, as gains. This leads to risk aversion; we just hate to lose out on anything.
Tying it back to stocks this might mean you don’t want to miss out on the wild run a stock has had so far. Or you don’t want to sell a stock because you don’t want to miss out on potentially more profit. Or you don’t want to sell a stock because it might go back up. Chances are your experience with FOMO falls into one of the three scenarios.
Now that you know what FOMO is, let’s go over some ways to help you overcome it.
1. Have a Plan
FOMO is so powerful because it happens when you’re in an emotional state. When you’re emotional, reasoning starts to go right out the window. So it is important for you to establish a plan or guideline for yourself when you experience FOMO. Although your plan will vary from another person, there are some starting points:
- What are your goals for investing?
- Is the stock meeting your criteria at the moment?
By asking yourself these two questions when you’re starting to experience FOMO, you can bring rational thinking back to the table. For example, if a company stock has been stable for the last few years and now it suddenly went on a 1000% (not a typo) run it should be a red flag to you. However, at that point, FOMO is probably in control and you might be thinking of getting in because it might run up much more. Now, if you were to ask yourself those two questions, you might not think about getting in anymore because it doesn’t align to your goal or meet your criteria.
2. Embrace That FOMO Will Happen
Instead of trying to avoid FOMO, you should expect FOMO to happen and have a plan to deal with it. The cause for FOMO will vary depending on the investor. For some, it might be a big price run-up. For some others, it might be a high potential company stock that has yet to take off. FOMO can find its way regardless of how experienced an investor you are so don’t count on avoiding FOMO. Instead, expect it to happen at some point and have a plan for it.
3. Focus on the Long-Term
Investing is a marathon, not a sprint. That being said, if you’re investing you shouldn’t be expecting to get rich quickly. Your focus should be on the long-term gains not the short-term.
When you’re experiencing FOMO over a stock, take a step back and look at it from the long-term. Have the fundamentals of the company changed? Was the recent run-up in price all hype or is there a good reason? Would you feel comfortable holding the stock knowing it can go back to the price before the run-up? Rarely would a stock you’re experiencing FOMO with would get pass these three questions. If it does, you might be dealing with a generational company.
I hope this post was helpful to you. If you found this post helpful, share it with others so they can benefit too.
To learn more about actionable steps you can take during a bear market you can check out my post on navigating a bear market. If you’re new to investing and need a guideline to help you start your investment journey you can check out my post on setting yourself up for financial success.
To get in touch, follow me on Twitter, leave a comment, or send me an email at steven@brightdevelopers.com.