Regret theory talks about how people anticipate regret when they make the wrong choice and how that plays on their mind when taking a decision.
At times this fear can paralyze action and make people take irrational decisions.
Legendary investor Perter Lynch often cited CML Group as a regret.
He had experienced their products personally, he knew sales were rising.
He had 2 trusted analyst tell him that the company is doing well and should be considered for investment.
However he had a nagging doubt that prevented him from investing.
When Warren Buffett first bought a stake in Berkshire Hathway, it was a failing textile company. He saw an opportunity in closing mills and bought a large stake.
A few years later the manager of the company offered to buy back the shares from Buffett, however the offer was too low which got him so angry that he fired the manager and ended up becoming majority owner of a failing business.
Buffett has estimated his losses from this purchase to be to the tune of 200 Bn USD.
#FOMO & FOBI are Like a Pandemic
In March, 2020 most investors had FOBI (Fear of Being In) and today they have FOMO.
Those who sold then found it very difficult to get in which is almost always the case.
In 2020 we saw what’s called a classic “sector rotation”, first came FMCG, then Pharma and then Tech and then something else.
It was exhausting for investors.
Just as you thought you got it right, something else started working and where you invested lost momentum.
#Are you up for the ride?
Our experiences make us who we are.
You don’t suddenly grow up into a confident smart adult.
You go through series of experiences, good, bad and ugly and a product of that is what makes you what you turn out over “The Long Term”.
Investors have a short-term memory.
A good year makes everyone an expert;
A volatile year takes wind out of the sails.
Universally every investor says, “I am Long-term investor”, however when what they hold is not working, they either turn into “momentum chasers” or get massive regret.
This can have severe confidence crisis and leads to FOMO/FOBI.
It is a roller-coaster indeed.
Lack of understanding.
I don’t tire saying this but investors need to know what they are getting into and why.
The lack of understanding (which is understandable when that’s not your area of expertise) leads to decisions based on tips, half-baked ideas and finally regret.
#What should you do?
Every day we try to incorporate work, family time, relaxation, work-out, entertainment.
Now different people have different idea on how each of the above will work, but it is taken care of nevertheless.
So have a plan that incorporates each of these needs/factors/emotions that you need taken care of in your allocations.
Always remember discipline of investing rather than chasing returns will have more stable outcomes.
Are their ways to incorporate each of the above in your portfolio.
Yes there is.
There is no short-cut to success and don’t even try to look for one.
For ideas and guidance contact on firstname.lastname@example.org or +919920741569.
Follow my twitter handle- irreverentinvestor @manver1974