A reader asks,” Sir, almost my investment decisions are due to FOMO (fear of missing out). This has led to multiple stocks, mutual funds, fixed deposits, bonds and chit funds. I am ashamed to disclose the number. After reading your articles, I have understood that my approach is wrong. Can you please write an article on how to overcome FOMO?”
It is impossible to eliminate FOMO in investing or any other aspect of life. Someone else’s success or failure will definitely make us question our choices. A new product or a rule change will again have the same effect.
So how can we minimise FOMO to a reasonable extent? Earlier, we discussed the role of emotions in investing. We cannot eliminate emotions but can be emotional about the right things. See: How to control our emotions when investing in mutual funds.
For example, instead of worrying about market losses or feeling euphoric about market gains, we can be emotional about our goals. I was able to survive five years of zero equity mutual fund returns only because I was emotional about retirement. I kept telling myself financial independence during retirement is the primary concern and end game.
The same trick can be used to combat FOMO. FOMO is good as long as it is the right kind. We should fear missing out on goals. Nothing else matters.
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Most people invest without any specific reason or a specific plan for a reason. They say they want to build wealth or get higher returns. When the goal is so vague, FOMO will have a field day.
So the first step is to look within. List our requirements and devise a plan to achieve each of them. Mark these as the primary objectives. Nothing else matters. The only rational FOMO is falling short of these. So each one of our actions should benefit these goals.
Studying the past is a great way to reduce impulsive buy-and-sell decisions. If you look at market returns from the past, you realize that whether it is 5 years or 50 years, returns are always uncertain and move up and down. When you look at fund performance in the past you realise that one year’s top performers are the next year’s average or even bottom performers.
Nothing works all the time. No idea, no fund, no stock, no sector will work all the time. And the worst investing mistake is to look at recent past performance and sell a fund or buy a new fund or product. The past teaches us lessons to prevent future mistakes. It keeps you grounded.
In summary, looking back and looking within has helped me fear missing out on the essentials and not worry about missing out on the dispensable. I am confident that it will work for you as well.