View: Market rally — do not let FOMO overwhelm you

View: Market rally — do not let FOMO overwhelm you

Presently, a large part of the market analysis and commentary is focused on the stock rally from the low prices recorded in March 2020. The popular narrative is that investors have made extraordinary return on their equity portfolios, in what was a once-in-a-decade opportunity. In my view, this narrative suffers from a serious lacuna. This narrative assumes that — (a) Investment is a discreet process and not a continuous one. Investors make investments only on occurrence of some event and exit as soon as the impact of that event dissipates. (b) The economic behavior of a majority of investors is rational. They are able to control the emotions of greed and fear very well. (c) Most of the investors have infinite pool of investible surplus, and they are able to invest material amount of money at their will. Unfortunately, none of these is even half true. Investment is a continuous process. Most of the investors stay fully invested in markets at most of the times. Usually, they reduce their exposure to risk assets like equity when down trend is fully …
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