The Different Types of Media Scares

Amar Pandit , CFA , CFP

This is in continuation to my previous Nano “It’s unbelievably easy”. In that Nano, I had mentioned the Media Scare. Read it quickly again to jog your memory.

I share some common media scares on the way up as well as the way down. I say “scares on the way up” because this gets most people into a FOMO (Fear of Missing Out) zone and people start doing things which might be injurious to their wealth, health, and life.

1. The FOMO Scare

A Fund Manager recently tweeted his son’s purchase of Gamestop(GME) Stock in the US during the reddit/Wall Street bets (I will write a post on the Wall Street bets and GME shortly) and how intelligent he was as this stock had soared some 3000%. A Media Outlet quickly published this garbage as news. This stock had hit a high of $483 on January 28 and it was down in 7 days to $50 levels correcting 40-60% every day. I will not get into the reasons for this but just think about this. How is this piece of news helping someone as an investor? In no way other than increasing FOMO. Some people then end up buying only to lose loads of money.

My second favourite Behaviour Gap sketch captures this sentiment wonderfully.

2. The Markets are Overvalued Scare

This causes people to sell too early and interrupt compounding. Even if you get out right before a deep correction, you have introduced the risk of entering again. Most people get the re-entry wrong. Even if you were that lucky to time exit and entry once, chances are it will not happen again. Thus, Rebalancing is one strategy issued by the rational investor. Have a process and plan to protect yourself against such irrational moves.

3. The Market going Further Down Scare

This is different from the above one. The above scare relates to the situation we are in now. The Market going Further Down Scare was the one in February – April 2020 when the markets had already corrected. We feel that the markets are headed downwards and there is gloom doom everywhere.

The solution to all these “scares” lie in this Nick Murray quote All Successful investing is goal focused and planning driven. All failed investing is market focused and event driven”.