When FOMO Takes Charge!
FOMO is one of the biggest emotional traps in investing. It is a common denominator in herd mentality related crises aka (Fear Of Missing Out). It’s an apprehension which makes us believe that others might have rewarding experiences which we are missing out on. At worst, it feels like a cacophony in our ears, and as a result we tend to concentrate on Investments that have recently performed and abandon those that haven’t done well, it’s all too human. It was always there and now social media have amplified it.
Most legendary investors understand how important it is to set goals, remain focused on them and ignore distractions. We must also remember the concept of mean reversion, which says that asset prices continue to move in & out between Fair value & Momentum zones, meaning thereby that farther they move away from their fair values, more likely to revert sooner. But everyone feels the tug of doubt sometimes, “sure I’m doing good, we tell ourselves, but my colleague/neighbor just got into a hot investment and is doing even better. Am I missing out “? It’s like “JAB DOST FAIL HOTA HAI TOH DUKH HOTA HAI, LEKIN JAB FIRST AATA HE TOH ZYADA DUKH HOTA HAI.”
FOMO can’t be avoided. It is expected to happen and has to be dealt with. Causes of it will vary, for some it might be a big price run up, for others it might be their high potential portfolio is yet to take off. FOMO finds its way regardless of how experienced you are.
While no one can predict how long the rally will last, FOMO should never drive you to go heavy on any asset. Currently Indian as well as global equity, debt funds have done well, cryptocurrency has given phenomenal returns. But before you jump on to any new investment decision, it’s important to lower the volume of emotion and tune into evidence. Let’s look at the following data points:
| Point to Point Return | |||||
| 01-Nov 2007 | 03-Dec 2007 | 14-Jan 08 | 05-Jan 09 | 02-Feb 09 | |
| Name | 26-Feb 2021 | 26-Feb 2021 | 26-Feb 21 | 26-Feb 21 | 26-Feb 21 |
| ICICI Prudential MidCap Fund – G | 9.61% | 9.03% | 8.05% | 18.61% | 20.44% |
| Kotak Bluechip Fund – Growth | 8.49% | 8.30% | 7.78% | 14.53% | 15.65% |
| DSP Top 100 Equity Fund – G | 8.28% | 8.03% | 7.65% | 13.48% | 14.16% |
| SBI Blue Chip Fund Growth | 9.45% | 9.29% | 9.04% | 16.59% | 17.78% |
| HDFC Mid-Cap Opportunities Fund – Growth | 14.69% | 14.46% | 13.83% | 21.66% | 23.14% |
| HDFC Flexi Cap Fund – Growth | 10.66% | 10.78% | 10.34% | 17.15% | 18.74% |
| UTI – Flexi Cap Fund-Growth | 12.15% | 12.13% | 11.60% | 18.11% | 18.95% |
| HDFC Top 100 Fund – Growth | 10.19% | 10.22% | 9.83% | 15.86% | 17.17% |
| S&P BSE Sensex | 7.06% | 7.16% | 6.77% | 13.69% | 14.97% |
| Nifty 50 | 7.02% | 7.07% | 6.67% | 13.45% | 14.68% |
A closer look at the above data which comprises of both passive as well as some active portfolios shows how materially different even the longer-term investment outcome is depending upon the entry or initiation levels. As rightly said by Howard Marks-
Investment success doesn’t come from “buying good things”, but rather from
“Buying things well”
Hence, to deal with this situation or the problem of FOMO, we should keep in mind few things:
- Investment is a marathon, not a sprint.
- Not all asset classes would perform simultaneously & NO investment avenue would either OUTPERFORM or UNDERPERFORM permanently, hence, Asset allocation is the key.
- What is the purpose of the investment in terms of specific goal & time horizon?
- How much can we tolerate in terms of volatility or NOTIONAL LOSS in pursuit of capital appreciation?
Investing decisions become clearer once you understand your risk appetite, grasp why you like certain opportunities and evaluate what options are suitable for you. Working with an investment professional is an effective way to develop a diversified portfolio that balances risks and rewards. So define your financial goals clearly, set out an asset allocation plan in line with the same, and invest accordingly, and if you already have one, STICK to it.
Happy Investing!
Team @ MintBox Advisory
DISCLAIMER: PLEASE NOTE, THE ABOVE NOTE IS FOR INFORMATION PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS INVESTMENT, TAXATION, AND/OR LEGAL ADVICE. MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME-RELATED DOCUMENTS CAREFULLY.
Mutual fund investments or Investments in the securities market are subject to market risks. Please read the scheme information and other related documents carefully before investing. Past performance is not indicative of future returns.
