FOMO vs. FOLO

| March 26, 2019
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This is Behavioral Finance 101.

VItaliy Katsenelson explained the importance of being a Rational Investor this way:

The stock market is not your friend. You want to approach it the same way the American president should approach a one-on-one meeting with the Russian president: Be respectful but cautious. He might smile at you and say all the right things, but despite the diplomatic niceties, your interests might not be aligned.

The stock market awakens a dangerous emotion: fear. It is sitting dormant in us all, awaiting an excuse to wake up. When stocks are going up, we may find ourselves engulfed in the fear of missing out (FOMO). When we are consumed by FOMO our time horizon magically expands. We tell ourselves we are long-term investors and our risk tolerance is infinite.

And then when the market actually declines, a very different fear pays us a visit–the fear of loss (FOLO). The invincible hero who conquered the FOMO moment shrivels to a husk of his former self when the fear of loss emerges. The chest collapses, and so does the time horizon, shrinking from “years and years” to months, days, or minutes.

Staying rational is a very proactive, not a reactive, journey. Smart investors deliberately structure their lives and design our investment process to protect us from the toxicity of the market. The more you let the stock market into your life unguarded, the more room you create for fear – and the more your rationality slips from one toward zero.


Stay Tuned, Disciplined & Patient! {TJM}

The Investor & Character Equation (ICE) | S + R = O


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