According to me investing is a branch of psychology. To understand and excel in investing one should know basics of human behavior. In this current euphoria the most venerable section of investors is the retail investors. Individuals with limited capital looking for big returns are generally referred as retail investors. But the question is why they are most vulnerable ? Basic rationale can explain this vulnerability and we can divide all those reasons into 2 categories :
FOMO : Fear of Missing Out
FOBI : Fear of Being Invested
FOMO an FOBI together are known as “THE FO COUSINS”.
Fear of missing out is a behavior which is not only observed in equity market but is all aspects of life. Those who are not disciplined and do not have a plan to follow, generally become the prey of this fear. Now specifically speaking in context to stock market, retail investors generally tend to follow market news, buying tips given by their network or any other market euphoria. The latest and apt example is the case of Ruchi Soya. Ruchi Soya had a bull run from Rs 17 to Rs 1500 and then a sudden fall. But retail investors fail to understand the dynamics of the market and fall in the trap due to fear of missing out.
Fear of being invested is again a behavior pattern observed in retail investors as they have limited capital and they fear that they might loose their capital. Again, Yes Bank is a great example for this fear. Being invested in Yes Bank is a risky business as the future is uncertain and current scenario is not looking very good for the banking industry of India. But we need to understand that people invest in shares to get a decent return in future and future is always uncertain.
So now we have a basic understanding of FO cousins, next you would like to know how we can tackle these fears. Well its pretty simple to tackle these cousins. Generally the simplest solutions are most difficult to follow no pun intended. I say its simple because if we follow some basic fundamental rules and strategies of investing, these fears can be minimized but most people lack the conviction and discipline required in the field of investing.
Basic understanding of market, reading more of financial news, acclimatizing your mind with financial terms, following reliable market veterans and the most important criteria is being consistent in your efforts will give you the basic acumen for investing and will take you a long way.
“Money saved is money earned”.
Until next time…