Friday, March 4, 2016

Observing The Market - "Fear of Missing Out"

The stock market has rallied very strongly to close the week at +188 points to end at 2,837.

Sentiments have certainly calls for more bullish as we can see from how different certain individuals behave. You can sense when there are generally more positive news coming out from the media and individuals who started to re-enter the market. It appears that for some people, the sky seems bluer than the one they saw last week. The bottom is over, momentum investing is in play, it's not a time to miss out on these runs. Well, only time will tell if that is the case.

Some of the actions we've seen from individuals this week can be described as "Fomo".




The Fear of Missing Out is a social angst characterized by a desire to stay connected to what the others are doing. They are largely accounted by the emotional pervasive apprehension that others may be having rewarding experiences that you miss out if you don't join the crowd.

Early last year, I wrote an article (link here) about the psychology of herd investing and why such interesting behavior exists. In the article, I shared a story about Joseph Kennedy and how he managed to sell off all his stocks on the cusp of the Great Recession crash of 1929 when he heard a shoe boy sharing tips on the street. That was essentially a bullish moment waiting for a bubble to burst. 

On the other hand, I also shared an article (link here) about the psychology of contrarian investing and they are certainly not easy to endure, especially for first time investors. 

When the stock market was entering a bear territory not too long ago, I've had friends who decides to sell off part or all of their holdings on fear that this scenario could play out to be worse than any recession we faced in the past decade. There are many "gurus" on the street who are calling for doom's day, just like there are always "gurus" who are calling for bullish sky when things are clear. The noises on the street make it very difficult for an investor to decide what he or she needs to do, especially if one does not has a plan to start with.

As the market is rallying this week, we've seen similar people who started re-entering the market on fear of missing out. Since the share price has somewhat rallied, some of the investors who has sold earlier at the low would obviously be feeling a bit regretful of their decision. Perhaps, these investors would "promise" that the next time such opportunities arise, it would be a straight easy decision this time round. But as you can see from the market volatility, it is not as easy as it seems when certain things happen at certain timing for certain reasons.

I've received quite a bit of congratulatory messages this week as the market has rallied. I think this is perhaps due to some people thinking that I am invested in certain stocks which has done well this week. I started to think if I was really happy that the market has run up.




Test once...

Test twice...

Test thrice...

Confirmation acceded that there is nothing to be happy about just because the market rallied up in the short term. I knew that for as long as these are merely paper profits, it could turn sour in the other direction. I had to be ready for it when that happens. 

In fact, I would have been happier if the company which I'm vested in increased their dividends sustainably by 1 cents than if I had made an extra $30K in paper profits. When markets are lower, I am able to allocate my capital more efficiently than if the markets have rallied. So I am just hoping another opportunities might present but that's totally out of my control anyway, so there's nothing I could fret about it.

The next time there are "gurus" trying to tell you things, question their motive why they want you to hear or follow what they ask you to do. Perhaps, you can get a better answer for yourself and decide to spend the time more efficiently by reading up on things that matters.



20 comments:

  1. B, thanks for the great sharing!

    Mind to share what would be your investment strategy at this point of time, having said that it would probably be a short rally at this point of time. Would you divest those earning stocks and patiently waiting for the next bearish opportunities?

    ReplyDelete
    Replies
    1. Hi SeeKay

      You're welcome.

      My investment strategy would be always to add on to opportunities every month and I'll try to do that by looking for undervalued companies rather than timing the uncertainty of the market movement.

      Delete
  2. I was quite disappointed to see the market rallying again.

    Things were just starting to get exciting as it went down.

    But that's the good thing about being a long-term investor. When stocks go down, you are happy because you can buy more. When stocks go up, you are happy because you are now richer.

    ALways these positive emotions. #ForeverBullish

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    Replies
    1. Hi BFGF

      Yeah exactly.

      Either way, we are in a winner situation.

      Given that I am still in the wealth building stage, I'd prefer if the bear comes back and gives me more opportunities.

      Delete
  3. My advice should still be keep to your investing strategy regardless of how the general market is going, because if you are consistent, you will eventually gain in the long term. We can never catch the bottom. This is something that I really learn over these few months.

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    1. Hi TUB

      Yeah I think a lot of people were caught by surprise that the market suddenly U turn. Whether or not the market will u turn back again is anyone guess. But really that prediction shouldn't be our job to do.

      Delete
  4. Haha B,

    I be very honest. I am very happy that market rallied ho ho!! Go for 3000!!!

    Spartans!! Sell into strength !!

    Fight another day !!

    Oops sorry ... Got carried away

    ReplyDelete
    Replies
    1. Hi SI

      Hahaha, you are probably going to sell into strength right??

      Ok, I guess that calls for celebration also. I don't mind it either :D

      Delete
  5. i think the bear wasnt long enough!
    and the rooster was crowing for the bull was too early!

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    Replies
    1. Hi Fooztreasures

      We'll never know if we are out of the woods. Until STI hits above 3000, we are technically still in the bear camp.

      Delete
  6. I saw bullish divergent in a still downward trend.....Chim? Lol.....

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  7. Hi B,

    I think I am dogged by FOMO too! Sitting on quite a bit of cash and I am resisting the urge to deploy.

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    Replies
    1. Hi 15Hww

      You just loaded a lot last week :)

      Delete
  8. One of the biggest, well-known guru is guru Jim Cramer :P. Back in March, he called the oil bottom at $36. So some people flock back to oil or holding on to it. Come to find out the oil was testing $30s, then $26. Investors finally selling at the absolute worst time, then of course the oil rebound again, he's now calling $26 the bottom. LOL :) it might be true. However, the buying and the selling is super stressful. Holding is the key because when you sell you risk the quick rebound, that's how people lose money.

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    1. Hi Vivianne

      Very well said there.

      Sometimes I am guilty of selling only to see the stock went up and never come down. I think I need to instill the mentality of only selling when fundamentals have deteriorated and not because of price.

      Delete
  9. My strategy is investing for substainable dividend income, thus when market goes up, I just build my war chest. When market goes down, I hunt for good dividend paying stocks. Well, I also hold a few growth counters and may sell them if market keeps its momentum going up.

    Feeling happy with recent rally? Well, honestly, I didn't feel it.

    ReplyDelete
    Replies
    1. Hi Sweet Retirement

      I think I have the same strategy as you. When market goes up, I'll hoard a bit mroe warchest as I've used up quite a bit in recent times so now it's back to basic again.

      Delete
  10. Hi B,

    Thanks for the good sharing again. It serves a timely reminder to investors/readers.

    For me, the rally will provide me a break to build up my cash again. Feeling happy? Of course! Chasing to buy the stocks? Nay!

    ReplyDelete
    Replies
    1. Hi Sanye

      Thanks for the comment.

      Either way, I sense that you will continue adding to your portfolio with the dividends you receive so I think it won't affect you mentally as well :D

      Delete

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