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Common Pitfall – Fear of Missing Out (FOMO)

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Emotions can often run as hot or as cold as the market itself. Controlling these emotions is absolutely essential for investors. Obviously, this is where we believe an adviser can be very helpful, but there are also things that investors themselves can do to control their emotions, and ensure they are acting rationally.

Fear of missing out is one such emotion, and it has been hugely prevalent in the market over the past 18 months. This is not just an emotion that can drive poor decisions in the share market, it is also quite clearly influencing some property investors.

It’s easy to see how it happens, watching others make a lot of money on a certain purchase, or hearing about it at the clichéd summer BBQ, can often make investors feel obligated to join in and ‘get in on the action’.

But investors need to ignore the past when making purchase decisions. The future is all that matters at the point of purchase, and if a stock has risen, there is no guarantee that it will continue to rise.

Investing seems unique in a way, as it is hard to imagine another scenario where the price going up actually results in an increase in demand, but many investors take this price rise a cue to buy.

In 2008, Warren Buffett wrote, “Long ago, Ben Graham taught me that – Price is what you pay; value is what you get. Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

We agree, and although a reduced share price is not necessarily a buying signal, an elevated share price certainly is not.

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