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The Sisyphean curse and the Classic Error

It sometimes appears a futile attempt to understand the reckonings of the market. Fund managers are in constant pursuit to identify the best strategy. Analysts are forever discovering ways to assign fair values. Each cycle teaches new lessons, some contradicting while others complimenting the earlier learning’s. The journey is never complete and the knowledge never seems enough. But much like the Sisyphean curse, every stock market cycle has a similar story, investors make the same mistakes; and the boulder just falls off the hill once again!

With media screaming its head off about the index breaking new high’s, it’s difficult not to get distracted. The chaos affects your reasoning, evaluating skills and the creepy cognitive biases influence you to take decisions which you wouldn’t have otherwise. Most television commentaries are inconclusive and leave us more clouded than clear. With so much noise to comprehend, it is the Fear Of Missing Out (FOMO) that most often ruins a well-constructed investment strategy. FOMO becomes more intense as the market moves higher and higher and personal portfolios lag (as it is happening today!).

It is most unlikely to find success by mimicking the strategy that has worked well for someone. History provides several examples to this. Irving Fisher’s infamous prediction in 1929 just before the Great Crash ruined all those who followed him and almost finished his otherwise illustrious career. Benjamin Graham’s investment picks weren’t as good as his teachings on investment. It’s good to read Buffetology but highly improbable to follow. Timing, investment goals, temperament and several other factors vary from investor to investor, hence your neighbors size may not fit you. So don’t bother.
FOMO lets investors get more aggressive at the wrong time. For instance, under the current scenario the market is witnessing new highs on a daily basis. Unless temperament holds good, investors will be forced to jump into the exuberance. A closer analysis will reveal that the underlying fundamentals are not so supportive. Bloomberg data shows the latest earnings estimates have been downgraded for 57% of the 251 companies under coverage. It is estimated that Domestic currency can weaken further. RBI has indicated a rise in the interest rates and crude continues to hover near its recent highs. Focusing on the larger trend and the macro factors that affect it will offer solutions for prudent asset allocation. Then life becomes easier and assets are earmarked according to one’s investment goals and risk is captured appropriately.
The advent of social media has only exacerbated the FOMO and made decision making a lot harder. It drives you to look for immediate price sensitive information and meaningless discussions around them. Fancy hashtags along with intellectual quotes will always have a herd following. Latecomers will grapple to get hold on the information they missed and anxiety levels will unnecessarily rise. Social media has created a whole new breed of pseudo half-baked intellectuals who are now the majority influencers. It is wise to recognize them and stay clear. Researchers call it the Facebook illusion, where you get logged into the virtual world and logged out of the real one.

FOMO is primarily generated due to the lack of confidence in oneself. As the Guru himself quotes “investment is not a game where the guy with the 160 IQ beats the guy with 130 IQ. Rationality is essential”. We would add Temperament along with that. Investing in companies that are well researched and timing them prudently is not rocket science. Instead we constantly search and compare other people’s ideas and believe less in oneself. This will only create insecurity and leave the FOMO virus growing.Behavior expert Paul Dolan articulates it perfectly in his book, Happiness by Design: Change what you do, not how you think

Your happiness is determined by how you allocate your attention. What you attend to drives your behavior and it determines your happiness. Attention is the glue that holds your life together… The scarcity of attentional resources means that you must consider how you can make and facilitate better decisions about what to pay attention to and in what ways. If you are not as happy as you could be, then you must be misallocating your attention… So changing behavior and enhancing happiness is as much about withdrawing attention from the negative as it is about attending to the positive.

In conclusion, FOMO is a virus that spreads fastest when we are near the end of a rally. Check with your investment advisor if you already have it. It is better to look inward rather than outward for happiness as well as portfolio construction. Stick to the mandate/investment policy/investment goals provided rather than chasing the herd. Men are not equal, so are women- hence don’t compare.

Do not to succumb to the classic error of investing more at higher levels and break the Sisyphean curse this time around.

This article has been published in memory of those who had rushed into the tech boom rally or housing bubble and do not exist amongst us anymore! 🙂