Driving in the rear view mirror
Driving in the rearview mirror is never a good idea. The elephant being you’ll will miss what’s happening in front of you. Lamenting past…
Driving in the rearview mirror is never a good idea. The elephant being you’ll miss what’s happening in front of you. Lamenting over missed opportunities or past losses follows the same principle.
There are few things which stress people more than money. Mark Tobak, a psychologist in the USA, found most of his patients worried about money, and he counselled ordinary people. It is therefore no surprise missed opportunities in money occupy a different kind of stress in one’s mind; e.g. not buying Amazon when it was trading at $37 in November 2008 (currently above $3100 at the time of writing), or selling Apple during the 2000 dot com crash and losing out on $2 million.
It is perhaps thinking like this, which drives people towards the ‘fear of missing out’ anxiety, FOMO. Mark Tobak explains this beautifully in this article, taken from his book “Anyone can be Rich”, which I’ve quoted below:
We hate to lose. Ever search for hours for something you lost, and spend a fortune in time when you could have replaced it cheaply and easily? Or replace it only to find it later, and hate yourself for replacing it?
Marketers and businesses know how to exploit our fear of loss — just think of eBay’s “Don’t miss out — make a bid!” message. Costco pulls products off the shelves to make them seem rarer — so you can feel like you’ve found treasure and didn’t lose out on a bargain. Sales are closed when a seasoned salesperson tells an innocent buyer: “It’s the last one. I might not get any more of these.”
Being afraid to lose out is a weakness: Evolutionary psychologists have found that our primitive instinct to hold onto what we have is hard-wired, and that loss hurts us up to three times as much as gain feels good. The brilliant investor Charlie Munger uses the story of his family’s dog as a lesson. The sweet dog never bit anyone unless you tried to take its food. That dog lives in all of us…
So how do we overcome this? For this we turn once again to Charlie Munger, right hand man to Warren Buffett. In an interview with the BBC, Munger was asked how concerned he was, that the value of the company where much of his personal wealth is invested in, had decreased by 50%, due to a stock-market crash. Munger’s answer was the best — “zero”. Munger had no fear of losing money in investing, and rightly so. With a mind unclouded from the fear of losing money, Munger understands that in the short-term the market is erratic, and can be down 50% in the same breath as being up 50%. In reality, during such time people become anxious, the fear of losing grips them, and they do what their instincts urge them to, to cut (and materialise) the loss — they sell.
So how do we overcome our fear of missing or losing? As Yoda said:
Overcoming the fear of losing money in investing can help overcome one’s instincts during a down market. 50% down today in a market which can be best described as erratic, doesn’t mean a thing if there has been no change in the fundamentals of the company or vehicle you’re invested in. It only means something if you cash in and materialise the loss. At this point, your emotions have controlled you.
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Disclaimer: All information provided in this article and/or publication is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. All views and opinions presented are that of the individual and not representative of their employer.