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FOMO & PANIC-SELLING

April 16, 2024
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Show me a perfect investor and I will show you a unicorn. Some tips if you FOMO-ed into stocks.

 

Something few people talk about is the emotional part of investing. Humans have emotions and those emotions extend into their investment decisions. When we make emotional investment decisions, it almost always ends in losses.

 

Two very common emotional decisions people make in the market is FOMO and Panic-Selling. These mistakes are almost always fuelled by Greed and Fear

 

Fear of missing out (FOMO)

You see someone tweet about their massive gains on a stock or token. You hear from a friend the profits he/she made on Bitcoin. It is human nature to want to be part of that, however you can be rest assured there is no such thing as "Buying high and selling higher". The person bought low and will be selling high. As simple as this sounds, every person reading this has made this mistake. They bought something thinking they can jump on a bus and also make money. They did no research and essentially gambled.

 

Panic-Selling

This is the art of dumping your shares on a red day. You either did no research and do not understand the business and the moat or you invested in an asset class that is not fit for your risk profile, so you dump your shares at the first sign of a pullback.

 

What to do if you FOMOed into stocks?

We all make mistakes, but no mistake is fatal. You now know you were supposed to do the work upfront, but you did not.

 

Whatever you do, do not sell every stock, and start from scratch. You might already have some amazing companies in your portfolio.

 

Step 1: Analyze your portfolio

You need to check for duplications. Do you have more than 1 coal mine? Maybe too many technology stocks?  Just write down the industries in step 1

 

Step 2: Determine the % of your portfolio each stock/industry is

Are you too heavy on Healthcare or maybe Mining? Maybe Tesla is 40% of your total portfolio? Unless your intention is Concentration and not Diversificationjust make sure you are satisfied.

 

Step 3: Research

Do not cut any stock until you have researched it. Being in the red is no reason to cut an entire business. We invest in businesses, not share prices. If you understand why you bought something, you will never be shaken by a share price moves and panic-sell your shares. You will see it as an opportunity to buy more stocks of an amazing business at a lower price.

 

Watch this if you struggle with research

 

https://youtu.be/M9Y-MVex1_E

 

https://youtu.be/NH1vF7aC8uA

 

Step 4: Determine your optimal allocation

Which industries or companies do you believe in the most? Give them a higher weighting.

 

Step 5: Cut the losers

This is the hardest part. You need to cut companies that you simply cannot see yourself holding for the next 10 years. Even if you are in the red, cut the losers and divert the cash to what you believe in. It is painful to watch a red stock in your portfolio you do not believe in. Do not postpone the pain once you have made a decision.

 

Step 6: Correct going forward

You need to go back to Step 4 and allocate according to you allocation. These are your goals.

 

If you determined that you want 10 Tesla shares or 10% of your money in Tesla, stick to your plan monthly and ignore social media

 

Step 7: Create a Watchlist

When you see someone posting something interesting on social media, create a Watchlist. Do not buy something you have not researched.

 

  1. Add to Watchlist
  2. Check if it fits into your goals/plan e.g. Industry, Allocation Strategy etc.
  3. Research
  4. Patience


 


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