FOMO & The Sunk Cost Fallacy
There are two things that act as worst enemies of investors. We all know them well.
FOMO (Fear of Missing Out)
When the price of crypto is moving up aggressively we tend to freak out and worry about missing the ride and do things like chase price higher or buy on any little pullback. Often times this bites us in the ass and we make a poor entry price.
Other times we hold onto something that we are up big on because it is ripping higher and any pullback is just a hiccup before things are sure to rip even higher.
FOMO is a real mother!
The Sunk Cost Fallacy
Just as FOMO can impact us in areas of live other than investing - you have sunk costs in your life too.
You will emotionally invest in people, time at a job and money on investments. The thing is, many times it will turn out to be a waste!
As people we are driven by two things:
• The Desire for Gain (hence FOMO)
• The Fear of Loss
Many psychological studies claim the fear of loss is two and a half times more intense than the desire for gain.
Think about that for a minute! We take the pain of loss more than twice as hard as we experience the joy of gain.
No wonder we don't want to book a losing investment or get out of a crappy relationship. The sheer thought of locking that fact in is too much for most to digest.
Posted Using LeoFinance Beta
Fear is the most impactful emotion for humans and this translates into behavior, whether personal or professional. To try and manage it is to put ourselves out in the open and expose to it as much as we can in order to surpass it. Otherwise, we'll live under its shoe.
Exactly, step into the "fear" and it becomes more muted over time.
Posted Using LeoFinance Beta
True - the pain of loss is more than that of gain
Posted Using LeoFinance Beta
Indeed it is.
Posted Using LeoFinance Beta
After four years in crypto I have finally learned to buy low and not just near tops. Took me a while but I guess I'm not gonna be FOMOing any time soon.
Posted Using LeoFinance Beta
Yep, whenever everyone else doesn't want it, buy it. When your uber driver is bragging, sell it.
Posted Using LeoFinance Beta
Keeping emotion out of investment will help you to avoid sunk cost fallacy. Always think about the bigger picture, don't fall for the trap.
Posted Using LeoFinance Beta
Good point.
Posted Using LeoFinance Beta
I think these two things are a constant in every situation. I don't think they can be eliminated completely. We can only try to be as rational as we can about our decision-making. SOmetimes these things boil down to luck.
Posted Using LeoFinance Beta
Absolutely! Minimizing them is the goal. It will occur one way or another.
Posted Using LeoFinance Beta