How to beat FOMO… this has been a question that many of us, as investors, might be currently pondering. In case you don’t know what FOMO it simply means “Fear Of Missing Out.” As many of us already know, as of the time of writing this article (1/29/2021), there has been some incredible growth and volatility from two particular stocks (among others), GameStop (GME) and AMC (same ticker symbol).
The reason for these growth bursts is a whole different story of its own, involving a battle between Reddit retail traders versus hedge funds, particularly Melvin Capital and Citron.
To summarize this story, the growth of these stocks was not due to the fundamentals of the companies, but rather the market itself. In other words, they are completely over-valued.
This tremendous spike in price has brought a lot of attention to these stocks from mainstream media and common people, many of whom are unfamiliar with investing overall. It has also gotten a lot of investors thinking, “should I buy in”? Due to the tremendous amount of FOMO currently circulating the market.
Many of these investors are struggling to deal with FOMO as they see those around them buying into these over-priced stocks, all in the name of making a quick buck and “making hedge funds pay.”
Unfortunately, when involved in situations like these, more people end up losing money than actually making the money they’re trying to make.
In order to avoid being part of the majority in this situation, you either have to be VERY lucky, or you have to beat the FOMO and stick to your strategy.
In this article, I have outlined four important key points to help you maintain your course on your wealth-building journey.
The biggest key to investing is PATIENCE. You have a strategy, stick to it, and be patient.
You bought your stocks below their intrinsic value. Great! Now be patient. You’ve made the calculations, and you know their price will go up to meet their intrinsic value. You know that you’ve invested in intrinsic gold, so why are you stressing over stocks with no intrinsic value?
This also goes for passive investors investing in index funds or mutual funds. Stick to your long-term investing strategy, you’ll thank yourself in the end.
Sure, it’s nice to make some quick bucks, but quick bucks don’t normally produce long-term wealth, it’s an uncommon phenomenon.
However, if you’d like to make some extra cash by trading on the side, keep in mind that plenty of other opportunities will present themselves later, you won’t be able to take advantage of all of them but the best way to take advantage of them would be to be in them BEFORE the hype, not during.
At this point, you’re more than likely too late to join, and this booming stock may have no other choice but to go back down to meet its true value.
Having the fundamental knowledge of what you’re invested in provides you with comfort in knowing that it was the right move, despite what the outside media sources are yelling about. Having the right knowledge will answer whether buying into what everyone else is buying lines up with your investment plan.
If it doesn’t, don’t buy it. If it does, and you can somehow make it work, great! But the knowledge is there, you’re not making this purchase emotionally, but rather logically, after effectively weighing all your options.
Knowledge is power, and this statement sometimes is taken much too lightly. Know your plan, know what you’re investing in, and know how much risk you’re willing to put yourself into by buying risky assets.
With all this knowledge, you will be able to form an executive plan of action. If the knowledge isn’t there, your safest (and probably smartest) option is to stay away from the unknown.
When you feel the FOMO, you immediately start to think emotionally, not logically. But remember, you have a plan, stick to it. Don’t make unwise decision based on emotions. During FOMO, they will kick in, and they will kick in HARD.
Emotional discipline is required so that you can avoid making stupid decision.
Don’t sell or buy because it FEELS right, or just because everyone else is doing it. Maintain your discipline to your original plan.
Take a step back, breathe, weigh your options, weigh the risks. Don’t make decisions that you’ll end up regretting. Many people take on these big risks and end up with very negative outcomes. Don’t be one of them.
Buying a lucky hot stock and hoping it grows is the equivalent of buying lottery ticket and hoping you win. It’s all based on luck, just because it happens to some, it doesn’t mean it will happen to you.
Follow A Plan
Although this has been emphasized many time throughout this article, something that hasn’t been said is this: if you start out with an investment plan/strategy, you won’t be as tempted to jump into random gambles when they arise.
Once you have formulated a blueprint, the odds that you jump into something riskier than your current plan will be much lower. This doesn’t guarantee that you’ll never be tempted to jump into the gambles, it just gives you an alternative to look at instead.
At this point, you’ve constructed a plan that’s predicated on fundamental knowledge. Follow your plan, don’t change the course just because everyone else is doing it. You know your course and you’ve planned for this. Stick to the plan and stay disciplined!
Your future, long-term wealth depends on it.
As investors, we know how to value a stock, and we know that these high prices are very unlikely to continue this way in the long run. Thus, we should avoid buying in because we don’t want to take on massive speculative risk. Those who are able to get rich quickly from events like these are VERY lucky, but the majority of people end in tears.
If you’d like to take advantage of these types of opportunities, do it with money that you’re okay with losing. If you make gains, great! If you don’t, at least you didn’t lose a substantial portion of your wealth.
You’re gambling with money and the chances of prices moving up are just as likely as they are to go down. Don’t put yourself in a hole you can’t get out of.
The purpose of this article is help people avoid extreme losses and regrets that commonly occur in situations like these.
Have you made money from this situation? Have you lost money? Let me know in the comment section below, it’ll be interesting to read your guys’s experiences with this GME and AMC ordeal.