Is FOBI as scary as FOMO?

Reading Time: 5 minutes

Is FOBI as scary as FOMO?

There are two dominant fears for investors – the fear of missing out, better known as FOMO, and the fear of being invested, which is known as FOBI. FOBI occurs when you are invested, but are fearful that the market will crash and take away your gains or your capital. Especially prevalent in 2020 when the stock markets crashed in March 2020 itself. Typically, investors don’t like uncertainty and tend to panic when such situations arise. Also, panic breeds mistakes. And, in a volatile market, mistakes easily translate to losses. Therefore, investors find themselves in a trapped situation.

There is likely to be a lot of ups and downs, but if investment duration is the next 10 or 20+ years, We are not very concerned as long as we know that the businesses will perform well over a business cycle.
The best way to tackle FOBI is to have a long-term plan for investing.

Avoid Making a Lumpsum Investment

To understand this, see the image of NIFTY 50 below. Many investors must have think that in February when NIFTY touched a low of 11536 market has corrected but then it again fall down further in March and made a lowest low of 7511 due to COVID lockdown. So most of the investors out of those who have purchased in January would have panicked and redeemed to recover as much as they could. On the other hand, if an investor invests 10% of his corpus every time he thinks that the markets are down, he takes a lesser risk. With every drop his average purchase price will drop, increasing his chances of earning gains when the markets recover.

C:\Users\HP\Desktop\FOBI2.png

Be fearful when others are greedy and greedy only when others are fearful’.

Have Patience


Whenever there is a fall in market, we tend to redeem in panic. Since the markets are volatile, they can have some recovery and the value of your investment can rise again leaving us losing the opportunity of earning good returns. Therefore we should not realize or book losses by redemption unless there is an emergency.

Don’t let biasness overpower you

Some investors are overconfident about their investment decisions. They look at the markets and think that there cannot be a further drop and make investment decisions. However, if the markets drop further fear of FOBI arises and confidence start shattering. Confidence is good for investors whereas overconfidence is a behavioural bias that can lead to potential losses.

Don’t put all your eggs in one basket

Diversification is important to reduce the risks of your investment portfolio. In a normal market, investors purchase different assets to ensure that their exposure to one asset is limited.
When market crash, people tend to buy in bulk and keep the diversification concept aside which leads to fear on later stages and shakes the balance of your portfolio.

The best practise is to focus on creating corpus. Take a more objective approach to your investments rather than an emotional one. Rely more on the data rather than hearsay and ensure that whatever you are investing in, is in correct alignment with your financial goals. Educate yourself and think about bigger picture with a proper investment strategy. At the end of the day, everyone started somewhere. The measure of progress is how much each individual has improved over time.


To read the previous blog on Understanding Market Fluctuations via FOMO. Click here 

Disclaimer

There are two dominant fears for investors – the fear of missing out, better known as FOMO, and the fear of being invested, which is known as FOBI. FOBI occurs when you are invested, but are fearful that the market will crash and take away your gains or your capital. Especially prevalent in 2020 when the stock markets crashed in March 2020 itself. Typically, investors don’t like uncertainty and tend to panic when such situations arise. Also, panic breeds mistakes. And, in a volatile market, mistakes easily translate to losses. Therefore, investors find themselves in a trapped situation.

There is likely to be a lot of ups and downs, but if investment duration is the next 10 or 20+ years, We are not very concerned as long as we know that the businesses will perform well over a business cycle.
The best way to tackle FOBI is to have a long-term plan for investing.

Avoid Making a Lumpsum Investment

To understand this, see the image of NIFTY 50 below. Many investors must have think that in February when NIFTY touched a low of 11536 market has corrected but then it again fall down further in March and made a lowest low of 7511 due to COVID lockdown. So most of the investors out of those who have purchased in January would have panicked and redeemed to recover as much as they could. On the other hand, if an investor invests 10% of his corpus every time he thinks that the markets are down, he takes a lesser risk. With every drop his average purchase price will drop, increasing his chances of earning gains when the markets recover.

C:\Users\HP\Desktop\FOBI2.png

Be fearful when others are greedy and greedy only when others are fearful’.

Have Patience

Whenever there is a fall in market, we tend to redeem in panic. Since the markets are volatile, they can have some recovery and the value of your investment can rise again leaving us losing the opportunity of earning good returns. Therefore we should not realize or book losses by redemption unless there is an emergency.

Don’t let biasness overpower you

Some investors are overconfident about their investment decisions. They look at the markets and think that there cannot be a further drop and make investment decisions. However, if the markets drop further fear of FOBI arises and confidence start shattering. Confidence is good for investors whereas overconfidence is a behavioural bias that can lead to potential losses.

Don’t put all your eggs in one basket

Diversification is important to reduce the risks of your investment portfolio. In a normal market, investors purchase different assets to ensure that their exposure to one asset is limited.
When market crash, people tend to buy in bulk and keep the diversification concept aside which leads to fear on later stages and shakes the balance of your portfolio.

The best practise is to focus on creating corpus. Take a more objective approach to your investments rather than an emotional one. Rely more on the data rather than hearsay and ensure that whatever you are investing in, is in correct alignment with your financial goals. Educate yourself and think about bigger picture with a proper investment strategy. At the end of the day, everyone started somewhere. The measure of progress is how much each individual has improved over time.

Source Link

To read the previous blog on Understanding Market Fluctuations via FOMO. Click here 

Disclaimer

Every Wednesday and Saturday, we send Info-Graphic and FinMedium Weekly Digest newsletters to our 25000+ Subscribers.

Join Them Now!


Adroit Financial

Adroit Financial

SEBI Registered PMS Advisor - INP000005349
Please Share :)