Retail investors should not let FOMO creep in

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There is a term — ‘FOMO’ (Fear Of Missing Out) and there is a story of a frog in tepid water. You would say what is the co-relation? The answer is that in the current move of the stock market, these two things are very important to tell the condition of small and new investors.

On June 11, BSE’s 30-share Sensex and NSE’s 50-share Niftyreached record levels. There is a boom in the market and investors are riding a crest. Obviously, in such a situation, many people are falling prey to FOMO. Everyone else feels that the other person has earned a lot in the boom period and has been left behind. This is a common practice. Today, a similar story is happening in the stock market. If many are going to tell that in the midst of the market boom, he has gained a certain amount by investing in a stock or his investment has tripled, then a person who has not invested in equities feels dejected. That’s what ‘FOMO’ is all about.

Frog fable

The fear of being left behind gives rise to the thought of doing something more than the right. Taking cue from the story, which if released directly into boiling water, will try to jump out and may even succeed. But now the atmosphere changes. Fill a vessel with water and drop the frog in it. The frog will not try to escape.

Now start heating the vessel slowly. Initially, the frog will not feel any problem and it will stay in the water. But there will come a time when the water starts boiling and then there will be no way for the frog to escape.

Greed

Many people have had a similar situation in the stock market these days, especially those who entered during the boom period. Everyone talks about the limit of losses i.e. Stop Loss, but rarely such people are found, who would say that fix this limit of profit. I miss an advice from a senior SEBI official. He used to say that everyone decides how much roti to eat or how much rice he has to eat, but never decides how much money to earn, how much profit to make. The only goal is to earn a lot. This is the root of the problem.

It is a simple matter that no stock always goes up, it also goes down. There has been a decline, that small investor thinks it doesn’t matter, then it will rise again. Climbed the second time, but not as desired, then stopped. Big fall now, losses too high. What should we do now?

Investors need to be patient. What will you do if the market does not rise? Don’t regret losing money. Keep in mind that not everyone makes money in the market. Some earn, some lose. The condition of many of them is like that of a frog that tries to sustain itself in lukewarm water but when the water starts boiling, that is, the loss increases greatly and instead of profit, the root itself becomes the danger of drowning. Most people would be better off selling the stock at any price, even if the original is discounted.

Patience is the key

Now consider two facts. The first thing is not to invest only in stocks, but invest only in patience. Secondly, there is a risk of falling and getting hurt while trying to board a speeding train. It means when the market is bullish and there is a lot of volatility going on, then it is not the right time to enter.

Suppose economics says that profit is the return of risk, but it does not say how much to take. No one can decide this better than you, because you know the most about yourself.

The money is your own and there are many legal avenues other than the stock market from where you can make more money.

(The writer is a senior journalist. Views expressed are personal)