Why FOMO is injurious to stock investors' money

It has been over five year since I visited a local garbage dump in West Delhi. The visit was a revelation in many respects. A casual discussion with the rag pickers exploring the heaps of stinking garbage to collect pieces of paper, plastic and metal, was quite enlightening.

Out of seven people diligently scanning the dump, three were children under the age of 14, including one girl, and three were youth in the age bracket of 19-27. On being asked why they chose to do this menial, risky (health wise) and stinking job, when they have relatively decent options like pulling a cycle rickshaw or even driving an e-rickshaw, working at a nearby auto garage, cleaning cars in nearby housing societies etc, the youth politely answered, "We are doing this job for past 12-15 years. How could we change it now?"

On prodding further, one of them admitted that many of their peers live on a hope. "Someday they will find treasure in the garbage. More years you have put into the job, the greater the chances of you hitting on a treasure." Though, the best they could cite of a treasure find was a gold bangle found by one of their seniors some eight years ago.

The discussion did two things to me: (a) It prompted me to drop the search of the lost earring of my wife, which she thought could have been dumped there with the daily kitchen waste, with the hope that it may complete the treasure hunt of some child; and (b) Raised numerous pertinent but disturbing questions in my mind.

I am reminded of that instance today, because in the past three weeks I have come across an unprecedented number of “regretting stock traders”. Incidentally, they are regretting buying; not selling; and not buying the stocks of the same business group in a span of three weeks.

• Some are regretting buying Adani Group stocks at a high valuation in the past one year.
• Some are regretting not selling Adani group stocks on January 25 itself, when the Hindenburg research first appeared on social media and stocks were down just 3-4 percent.
• Most are regretting not buying Adani group flagship, early morning on February 3 when it was locked at lower limit and went on to rise over 100 percent in the next three trading sessions.

Over the past three decades I have seen numerous cases of traders losing their entire capital in hunt for one elusive “20 percent gain in a day” opportunity. Just like the rag pickers, these FOMO patients have heard folklore of some veteran making a fortune from extreme market volatility. They are also anxious to see their names on the hall of fame of the stock markets.

In the past one decade itself, we have seen numerous instances where traders have burnt their hands badly in their attempt to make some quick gains. JPA Group, ADAG, IL&FS, DHFL, Yes Bank etc. all made traders regret the “opportunity” on multiple occasions; infected them with FOMO syndrome and caused material erosion in their wealth.

I am definitely not suggesting that Adani group is taking the same route as JPA or ADAG which incidentally had similar profile, asset base and cash flows. I am just suggesting please do not regret and avoid FOMO. It is injurious to your capital.