I’m a new investor and i have been following the market for more than 2 years but whenever i feel that its the right time to buy a stock I go all in and invest all of my capital on that particular stock, but after few weeks/months some other stock in which I’m interested would have met my buy conditions but I’d have no capital by then. So i want to know how to overcome this FOMO in investing and any suggestions for strategies/ techniques to discipline the approach is very much welcome
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Buffett bought and sold 400 stocks between 1950-1960.
Portfolio churn is.not necessarily a bad thing. Buy and hold makes sense in the context of opportunities available. If I own a company who’s earnings are expected to compound at 15% and I find a company who’s earnings are expected to compound at 30% and I have same trust in both the estimates then it doesn’t make sense to Continue to buy.and hold first one .
Key question is why we want to switch, the switch itself is neither good nor bad.
The key for you would be to understand the reason for churn. Returns in a stock are often lumpy in nature and a particular investment thesis could take time to play out as very rarely business story pans out in a linear fashion. Also one should factor in the power of compounding , opportunity cost etc.
Are you an investor or a trader or both? It is relatively easy to be an investor, because you have time on your side and slowly the mistakes that you do will get reduced and you evolve into an investor with your core circle of competence, a framework and eventually you will make profits. If you are a trader it is hard and the time frame is less. You have to keep a stop loss, you have to take that loss, you need more capital and if you cannot afford such losses and keep the stocks in your PF as they are good stocks, you need even more capital. And you can both be an investor and a trader at the same time.
If you are an investor, think of them as companies, if you are a trader, think of them as stocks.
I’ve been a trader since 2 years and i learnt a lot about the practical aspects while trading but I dont have much of experience in investing and this has made me vulnerable to Fomo in investing.
If you are a trader and are successful at that, investing will be easy for you as you have the benefit of knowing entry and exit, technical analysis that is.
I think FOMO is not investing. If you are missing out on something, it essentially means that it is a trend, something is in vogue and it exists until something else starts. You don’t miss out on things that you want to do, you miss out on things you want to do because others are doing, and you want a piece of it before it ends. So in my opinion, you don’t miss out on investing and FOMO does not apply to investing in general. There will be occasions, when a good company comes to IPO, and you want to buy as you are certain the price will go up.
I have seen people churning much, but I don’t know if they go all in. If they find a better opportunity they surely switch. Who does not want to maximize their return?
So either you can invest some portion of your desired allocation and not full, as something else will come up after some time or you can exit the current stock for gains or for losses and buy your new found one without flinching.
If psychological aspects are your barriers, maintain a record. Keep a record of the reasons like why you do want to buy something, what return you are expecting, what will be the minimum duration you will stay invested, if you found something new, are you sure the return is going to be high, can you sell the current stock for loss, how much loss can you afford, is there a possibility that the new found stock could bring loss etc etc.
All new investors go through this phase I guess. All part of learning maybe, so not permanent I think.
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Thank you for the insights, will surely try to inculcate all this to my trading/investing style.
I think even most experienced investors are also not immune to this psychological human aspect. One way to control it is to know and be very sure of what type of companies you don’t want to invest and hold, no matter how lucrative they seem…so it’s like knowing exactly what you don’t want to do rather than what you want to do…
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