Fear, FOMO and other people's returns

A recent result can change how a plan feels without changing what the money must do. Give the proposed transaction a reason beyond catching up or undoing regret.

What changed after hearing about the gain?

A friend reports a large gain. Your quiet portfolio suddenly feels inadequate, although your spending needs have not changed. The comparison creates an urge to catch up: one form of fear of missing out, or FOMO.

Spark holds a plain bread slice and looks at Stone showing a flat photograph of a golden loaf while gesturing from a park bench.

The winner might be a small holding or a concentrated bet. Even a complete record cannot establish a fit with your reserve, deadline and loss capacity. Copying the investment does not copy the person’s resources.

What the percentage leaves out

Check period, cash flows, borrowing, costs, losses elsewhere, time involved and the share of wealth exposed. Learning from the story differs from adding a holding to relieve comparison pressure.

Lori Schock’s archived Investor.gov article describes pressure to follow popular investments. Its historical examples and US account guidance are not instructions for every reader.

Which job would today’s €8,000 do?

A hypothetical share-fund holding falls 20%, from €10,000 to €8,000, ignoring costs, income and taxes. The decision now concerns €8,000. A calculation of the rise needed to regain the old value is not a forecast that it will happen.

The old price records what you paid, not what the holding owes you. Examine today’s exposure, spending needs and the costs and tax consequences of changing it.

A lower price alone does not establish whether keeping or selling is justified. Selling to stop seeing the loss can bypass the same assessment as waiting solely to break even.

Reference points and loss aversion

Loss aversion describes giving losses greater weight than comparable gains. Kahneman and Tversky’s 1979 prospect theory models decisions relative to a reference point; it establishes neither identical reactions nor a fixed loss-to-gain ratio for everyone.

For the arithmetic, return to recovery from the remaining balance. Here the decision concerns what the holding can do for today’s goal, regardless of its purchase price.

Waiting for an old price cannot fund a bill unless the arrangement tolerates the wait and possible further losses. Recognising an anchor does not itself dictate a transaction.

A win can change the size of the next commitment.

A few gains can encourage a larger position, narrower portfolio or stronger forecast. That new commitment can matter more than the first successful choice. Check its effect on loss capacity and diversification before increasing exposure.

Overconfidence and contrary evidence

Here, overconfidence means treating a judgement as more certain than its evidence warrants. Confirmation bias favours supportive information over material that challenges the rationale. Ask what would weaken it, and assess that evidence on its merits.

These descriptions are prompts for examining a decision, not personality diagnoses. AQR’s practitioner discussion describes confirmation bias; the larger-commitment example is an editorial application, not a measured study result. A profitable outcome and a repeatable process remain different evidence.

A missed gain has not left your account.

Regret can follow both action and inaction. A price known later cannot show what was predictable before a purchase or a missed opportunity. Increasing the next bet changes current risk, not the earlier evidence.

Urgency, endorsements and social pressure add no evidence of suitability. The FCA discusses hype and FOMO; a “last chance” claim deserves scrutiny even among enthusiastic friends. You do not need every winner to fund a long-term goal.

Give the proposed transaction a reason.

Two possible reasons to reconsider

A friend reports a gain
Your goal and resources are unchanged.

The story establishes a reported result. It does not establish that the exposure fits your money's job.

Your payment date moves closer
The same money is needed sooner.

Less time is available to absorb losses or delays. Reassess funding and suitable risk.

These are examples, not the only reasons to review. Anxiety can uncover a mismatch in ability and willingness to take risk; correcting it may be justified. Name the changed fact, affected goal and improvement a proposed transaction would make, without predicting the next price.

Check your understanding

Try each question, then check your answer.

Choose questions from another chapter

Why keep this fund?

You would reject a share fund today under your current plan, but want to keep it solely until it returns to your purchase price. Which question most directly examines that reason for holding it?

Whether the old price is anchoring a decision that should reflect current facts and goals.
Whether to use the purchase price as the minimum acceptable selling price.
Whether buying more would lower the average price paid.

Show the explanation

Correct answer: Whether the old price is anchoring a decision that should reflect current facts and goals.

The old price records a past payment; it is no repayment promise. A sale-price limit or a lower average entry cost does not establish why this fund fits the current goal. Check present exposure and the consequences of changing it, including costs and taxes. Recognising the anchor does not by itself dictate a sale or purchase.

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