NEW DELHI: There are two predominant fears for investors – the fear of missing out, better known as FOMO, and the fear of being invested, which I call FOBI. For those who love to time the market or have continuously changing opinions about the market and its future direction, these are the two most important considerations.
FOMO surfaces when you are not invested in a stock or a sector and it starts running up a lot. FOBI occurs when you are invested, but are fearful that the market will crash and take away your gains or your capital.
Both are equally dangerous for the health of your investment. Both make you do irrational things, which you regret in hindsight. And everyone gets them at some point in time or the other, even the most seasoned investors.
I try to deal with the FO cousins – FOMO and FOBI –in a couple of different ways. First, to tackle FOMO, I invest in a momentum portfolio using my quant strategy. Here, the system picks up the stocks which are doing well, for whatever reason. I have designed the system so that it catches short- to medium-term trending stocks and ride the trends in them. So, I am invested in those ‘runaway’ stocks like Adani Green, Alkyl Amines or Laurus Labs and do not have the feeling of having missed out on any significant rally.
Secondly, I have written down my investment plan, which is, to me, a sensible way for long-term investing. It includes dividing the portfolio into long-term stocks, turnarounds, dividend plays, growth stories or some combination of these.
In my long-term portfolio, I rarely try to time the market in an absolute sense. I may calibrate positions from time to time, but very rarely do I get in or out in one go based on valuations or market levels. I am comfortable knowing that investing in equities is the best way to participate in the wealth creation journey of a business.
There is likely to be a lot of ups and downs, but since my investment duration is the next 30+ years, I am not very concerned as long as I know that the businesses will perform well over a business cycle.
The best way to tackle FOMO & FOBI is to have a long-term plan for investing. Having a well laid-out strategy for your own investment is critical. As I keep saying, more than three-fourths of investing is behavioural psychology and you should be aware of the fact and program yourself to circumvent the various inevitable biases.
(Abhishek Basumallick is the Head of the equity advisory www.intelsense.in for long term wealth creation and a pure quant focused newsletter at www.quantamental.in. Nothing in the article should be construed as investment advice. Please do your own due diligence before investing.)