“Where are my investing gains?” Sin #1: FOMO Investing
Have you ever been stuck in a stock position because you bought in too high? And now you’re hoping that maybe one day it’ll pop back up?
In today’s article, you’re going to learn how to avoid getting yourself into that sticky situation.
This is the start of a new series called “Where are my investing gains?”. In this series, we’re going to explore investing mistakes and how to save yourself from heartache and loss of time and money.
Today we’re going to explore sin #1, FOMO.
FOMO is short for Fear of Missing out and FOMO investing is VERY real.
Just imagine if a friend says this to you:
“Hey I’ve got a hot stock tip. I got in at $40 and 8 days later, I’ve doubled my money!”
And then another 1.5 months later…
“The stock I grabbed is now $120 – I tripled my money!”
And this is where you feel FOMO because you also want to make fast money. Because who wouldn’t want to triple their money that fast?
So, you end up asking for the stock ticker symbol.
Spoiler alert though: it may not work out very well for you.
The timeline I used in that skit actually played out in real life on the stock ticker symbol ETHE.
On March 16th, 2020. ETHE’s price was at $41.
Less than a month later on April 2nd, the price doubled to $83.
Then, less than 2 months after that, the price shot up to $120.
Ready for it? Here comes the FOMO of people who are afraid they’re missing the big pump up…
This FOMO crowd skyrocketed the price all the way up to $239 only 5 days later!
But guess what? The smart money got out with their profits and now, less than 20 days after that high, the price is only at $87. If you got in on the high, you would be down 64% already.
Being down 64% is not that easy to come back from.
FOMO Investing and its opportunity cost
So because of FOMO, you may be stuck in your position now, and for how long? A few months? Years? Maybe forever?
You may be stuck in this position indefinitely because you don’t want to take the realized loss on it.
However, now there’s the opportunity cost of not being able to invest in other stocks because your funds are held up.
This is certainly not the most ideal situation!
So what’s the lesson here? Don’t FOMO into a stock just because somebody else or a bunch of your friends are making a lot of money on a stock they recommended.
Learn to be patient, do your own research, and find the right entry points when you open a position.
If your emotion is driving you into a position, especially if you can recognize it is FOMO or unwarranted hysteria for a stock without any changes in its fundamentals, then it’s best that you take a step back and re-evaluate your entry.
Perhaps you’ll miss out on some gains if it does continue to skyrocket, but I promise you it won’t be the last opportunity in your investing career.
And in the likely chance that a FOMO stock ends up plummeting back down to reality, you would have saved yourself a lot of sleepless nights.
And your brokerage account will thank you.
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Don’t FOMO, and here’s to you investing in your knowledge and future in the Freedom of Choice lifestyle.