10 August 2021
It comes as no surprise that many investors will occasionally have a similar reasoning – giving rise to trends. This can be attributed, in part, to a phenomenon known as herd instinct, where people follow the actions of others under the assumption that the others have already done their research. It doesn’t help the fact that our hyper-connected society shares information, speculation and memes, which serve as ‘spin’ for investors decisions.
In this blog, we will look at ‘TINA’ and ‘FOMO’ as market drivers, and their effects as scale.
In investment terms, ‘TINA’ is used to explain a less-than-ideal portfolio allocation due to other asset classes offering worse returns. Essentially, it means choosing the lesser of two evils, but it goes deeper than that.
For example, late in a bull market, investors might be concerned with the possibility of a reversal and be unwilling to allocate much of their portfolios to stocks. However, due to a lack of satisfactory alternatives, investors may hold stocks despite their concerns rather than revert to cash. Suppose enough participants are of the same mind. In that case, the market can experience a ‘TINA effect’, rising gradually despite an apparent lack of drivers since there are no other options for capital increase.
The fear of missing out on an opportunity to earn profits can drive even the most conservative and risk-averse investors to ignore warning signs. Fear of missing out on what could be a once-in-a-lifetime opportunity spurs more speculation, drawing an increasing number of investors and traders into the fold.
This can trigger panic buying, a type of behaviour marked by a rapid increase in purchase volume, typically causing goods- or security prices to increase. It’s the type of behaviour that inflates an asset bubble.
It is human nature to regret missing out on a good thing. It’s difficult to hear of other investors making hundreds or even thousands of percent returns in short periods with investment opportunities that you missed. The worry of losing out on something important may be overwhelming. But it's crucial to avoid ‘FOMO’ when it comes to investing.
Don't try timing the market by cashing out, and don't follow the herd by piling into the day's investment trend. Maintain a long-term mindset and stick to your financial plan. Great investors tune out the noise and concentrate on their long-term objectives. This thinking is aligned with Warren Buffett’s advice, “Be greedy when others are fearful, and fearful when others are greedy.”