Fear of Missing Out (FOMO) (错失恐惧症)
FOMO is one of the biggest enemies for investors, especially when the market is moving upward. When a stock has recently hit their historical high, and you feel that it may go higher, and you decided to buy the stock regardless of its valuation, that is exactly what FOMO means.
Let’s take Malaysia’s stock market as an example, the share price of glove companies soared for numerous thousand percent and every investor are eager to buy these stocks. If one is able to buy the stock when it is still cheap, then he will be able to earn a lot. The most terrifying type of investors are the one that do not bother to get involved into glove companies at first. However, after seeing people after people are earning money from it, and the share price did rose to a historical high, these investors are unable to stand their ground and also bought in glove companies despite its high PE ratio by that time. These investors are the ones who suffer losses after the August-September glove correction where the share price dropped for approximate 50%.
To be honest, investors should not have a FOMO mind-set where they will sell every holding just to chase for the trend, but to make their own assessment. A more rational investor will first assess what are the risks if they buy the stock immediately, despite its valuation and peak share price. Then, they will set a few prices for them to buy, and will only buy when the share price dropped to a more rational position. Furthermore, these investors do not fear when the share price dropped because they are well aware of the glove demand is still very high globally, and the backlog can be tracked until year 2022.
One of the best quote from Warren Buffett is his Rule number 1: to not lose money, and Rule number 2 is to never forget Rule number 1. Although it may seem tedious that Warren Buffett said these kind of words but it was proven to be true. If one missed out something, for example APPLE stock, they will not lose anything. However, if you bought APPLE stock when they are priced in a very high position, you may eventually suffer losses, and that’s what Warren Buffett tried to warn the young investors, to not have the mind-set of FOMO.
In short, investors nowadays, especially during the big surge of glove companies back in June and July have the same mind-set of being FOMO, where they put all their money into these stocks. However, a wiser investor will distribute their risks into other segments too, to prevent the big drop in gloves causing the entire portfolio to suffer losses. Hence, risk management is a must when investing, even that makes you earn lesser, but the possibility of suffering losses can be minimized.
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