Inside the mind of our Investment Manager, Charlotte

When markets are moving rapidly and emotions are high, Charlotte explains how clear communication and planning result in the best decisions for each client.

| 4 min read

FOMO – or fear of missing out – is now recognised as a social anxiety. When markets are moving rapidly and emotions are high, Charlotte explains how clear communication and planning result in the best decisions for each client.

FOMO is defined as “a fear of regret, which may lead to concerns that one might miss an opportunity for social interaction, a novel experience or a profitable investment. It is the fear that deciding not to participate is the wrong choice”.

As investors, we battle FOMO daily. In microeconomic theory, we call it the Opportunity Cost – the loss of potential gain from other investments when one is chosen over all the others.

So, how to do we deal with this issue of FOMO – for ourselves and our clients? Well, we do this by ensuring that we truly understand your risk profile.

As a new client, your Investment Manager will have spent a fair bit of time discussing this with you. You will have completed the BITA Risk Questionnaire and chatted through the answers, potentially being quizzed on any apparent inconsistencies. This is because it is so important that the foundations on which we build a portfolio are solid – so that when the tremors of stock market upheavals hit, we can be sure it has the best chance of withstanding them as expected.

We will then keep revisiting this at the regular reviews, to ensure that it remains appropriate. As life progresses, our ability to tolerate fluctuations in capital values or income can change – and we need to ensure we accurately reflect the current situation. That’s why we like to find out what has happened since we last checked in and ask about any upcoming plans that could change things in the future. We would always prefer to understand more rather than less about your financial circumstances, as this way we are in the best possible position to help guide you.

Many clients have said to me that they would like to “simply” increase their risk when times are good and decrease it just before there is going to be a market correction. While, obviously, this would result in excellent returns, sadly our predictive powers are not precise enough to gauge the exact moments that market sentiment will turn. History shows that there are still substantial returns to be made in the last throes of a strongly rising ‘bull’ market, while also proving that an angry ‘bear’ can approach with astonishing speed, with indices dropping in minutes and hours rather than days and weeks.

This is all the more reason for us to ensure that our clients will ride the appropriate investment rollercoaster for their individual circumstances. We all have someone in our lives who is happy to tackle every big ride in the theme park, finding the tummy-lurching drops exhilarating just as they enjoy the views from the top of the big dipper; while others may be more comfortable getting no further than the spinning teacups. The same is true of investments, with some people so relaxed that when big events shake world markets they will see changes in the value of their own investments without finding it unduly concerning, while others feel considerable discomfort at the thought of their own valuations showing more than quite modest changes.

It is our job to ensure that clients understand that we are unable to stop the ups and downs of equity investing, but that we can try to ensure that their own range of movement is no more dramatic than they can both afford, and be comfortable experiencing; and that this applies both to the drops and the climbs.

This is how we mitigate FOMO. While there is likely to always be something which could provide a greater return, we remember that what can go up can also go down – and consider whether that would be appropriate. If not, then it is easier to let go of that particular opportunity cost in favour of something which has less chance of nasty surprises.

In this way, we can be comfortable that not participating may sometimes be the right choice.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Inside the mind of our Investment Manager, Charlotte

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