FOMO, favourite stocks and the value of an investment process

A stock keeps rising. People around you seem to own it. Waiting starts to feel like missing an opportunity.

Elsewhere in your portfolio, a holding has fallen. You hesitate to sell because you want it to return to the price you paid.

When an opportunity starts to feel urgent

Why does the investment make sense at its current price? How much exposure would it add? What evidence supports the decision beyond its recent performance?

FOMO - the fear of missing out - can compress the time you give those questions. The desire to participate becomes the reason to act.

Your purchase price can become an anchor

You might wait for a losing position to "get back to even," even though the original investment case has weakened. You might also sell a profitable holding mainly because taking the gain feels reassuring.

Terrance Odean's research examined investors' tendency to realise gains more readily than losses in historical US brokerage accounts. It provides evidence of a behavioural pattern, rather than a diagnosis of every investor or a rule for when any particular stock should be sold. Odean: Are Investors Reluctant to Realize Their Losses?

The question worth revisiting is whether the position still fits your current reasoning and portfolio - not simply whether it has recovered its purchase price.

Write down what would change your mind

An investment note does not need to be lengthy. It needs to make the decision clear enough to review.

• The reason: What supports the investment case?
• The exposure: How much of the portfolio will depend on it?
• The uncertainty: What could make the reasoning wrong?
• The review conditions: What information would prompt another look?
• The action: What would justify adding, reducing, exiting or doing nothing?

That helps distinguish a changed investment case from an unchanged case that has become uncomfortable to hold. Neither automatically tells you what to do, but the distinction makes the decision more deliberate.

Activity is not the same as discipline

Responding to every price movement can feel attentive without improving the reasoning. A disciplined review may conclude that no change is needed.

Algorithms can apply rules. People still design them.

An algorithm can follow an implemented rule without becoming attached to a company or regretting a previous trade.

But people choose its objectives, data, models and settings. They also decide when to revise it and whether to override its decisions.

Automation therefore does not remove human judgement or guarantee freedom from bias. It changes where some of those decisions occur.

Give your decisions a reference point

When evaluating Fundgazer's portfolios, begin with the strategy's approach and examine its simulated decisions alongside its results. Consider whether you understand the reasons for portfolio changes, rather than judging each action only by what happened afterwards.

A process cannot promise a good outcome. It can make the reasoning behind a decision visible - and give you a clearer basis for reviewing the next one.

Explore our portfolios to understand the process behind their investment decisions.