Psychology

Fear of Missing Out in the stock market

Fear of Missing Out (FoMo) is a huge part of our lives these days, even though we don’t realise it.

The definition of ‘Fear Of Missing Out’ is ‘the uneasy feeling that you’re missing out on something that others are doing and gaining from it’.

‘FoMo’ could be felt because of excessive social media usage, along with various other things.

Let’s talk about the stock market.

In February – March 2020, the Indian stock market crashed by more than 35% – as economies around the world came to a standstill due to COVID19.

Some of the biggest listed companies were available for 40-50% discount as compared to the prices the stocks were quoting in January this year.

Yet, there were no buyers. The fear was so immense that people did not want to buy any stock.

The NIFTY50 hit a low of 7511 on March 24.

This was the time when most trade pundits were discussing the next low of Nifty. Some said the 6000 mark would be breached. Some were talking about 4500 levels.

Many were short on the market. Corona was expected to sweep India in the month of April and the country-wide lockdown would destroy the economy.

Yet, one month and one week later, the market has zoomed more than 30% from its March lows.

Those who were in extreme fear in March, are feeling the ‘Fear of Missing Out’ now.

  • Why is the market rising when it should have gone down further?
  • How can the market rise when businesses are closed?
  • Will the market rise further without giving an opportunity to buy at lower levels?

These are some of the questions that are being asked by people who are in utter disbelief.

The answer to all the questions is simple – the market doesn’t move in the direction in which the majority of people expect it to.

The market has always been irrational.

Even from here, the market could move in either direction. If there is a vaccine or a cure to the dreaded coronavirus, we could see the market move further up before slowing down.

Or, even if there is a vaccine, the market could once again surprise by crashing – as it would then be pricing-in the impact on the economy, when majority are buying – assuming it would go up.

In short, it’s impossible to predict the market moves.

What we as investors should be doing is to keep things simple and only work on what we can control.

When the market is in a state of euphoria, we need to avoid buying and maybe take some money out of the market.

When the market is in a state of fear – as it was in March – that’s when we as investors should be buying.

Selling when everyone is buying and buying when everyone is selling – is the most difficult part of investing.

Do this and you’ll have a very good chance of becoming a successful investor.

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