I recently saw an article talking about a resource stock which had risen from $0.14 three years ago to $4-something today. They touted that you could have grown your investment over 30 times if you had invested in this company. What a headline! And sadly punters will be sucked in to this type of spruiking without considering the appropriateness of these kinds of investments for their situation.
There have been a raft of similar articles earlier this year regarding Bitcoin and other cryptocurrencies and it speaks to the same point – journalists trying to target emotionally vulnerable readers fear of missing out (FOMO).
Needless to say, investing based on FOMO is probably the worst strategy you could employ. Everyone knows the adage “buy low, sell high” but FOMO encourages the exact opposite. Instead, wait until an asset has performed well and then buy in, too often at or just past the peak. This is also not limited to single assets but can be seen in managed funds, ETFs, superannuation funds etc. as punters chase “strong returns” without regard for their underlying objectives.
It might not sell as many newspapers but smart investors need to focus not on what made money yesterday, but what will make money tomorrow. If you look at successful investors over the long term, they are able to see the world as it will be and place their money behind the trends or causes that are emerging. This also allows them to align their capital with their values and goals much better than simply trying to chase a return. It’s a more thoughtful approach and much less emotional.
I would challenge everyone to consider their investment objectives and their underlying attitudes to investing. Are you investing based on a gut feel, an emotional need not to be left behind, or an educated vision of the future and firms you give your hard earned capital to?