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Friday 4 September 2020

Beware of the FO symptoms – FOMO & FOBI

There are two predominant fears for investors – the fear of missing out, better known as FOMO and the fear of being invested, whom I call FOBI. For those who love to time the market or continuously have different opinions about the market and its future direction, these are the two most important considerations.

FOMO is when you are not invested in a stock or a sector and it starts running up a lot. FOBI is 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 investment health. Both make you do irrational things, which in hindsight you regret. And everyone has them at some point in time or the other, even the most seasoned investors.

The way I try to deal with the FO cousins – FOMO and FOBI is through a couple of ways. 

Firstly, for tackling FOMO, I invest in a momentum portfolio using my quant strategy, quantamental Q30. 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 don’t have the feeling of having missed out on any significant rally.

Secondly, I have a written down investment plan for myself which is, to me, a sensible way of 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 very 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 investing 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.

(This article was first featured in Economic Times - https://economictimes.indiatimes.com/markets/stocks/news/fomo-is-gone-its-cousin-fobi-haunts-investors-now-how-to-deal-with-them/articleshow/77926851.cms)

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