When you allow emotions to sway your investment declslons

Financial experts caution against Fomo and greed; say think long term and manage risks

- Alyssa Woo

Investing and financial markets might be full of data, graphs and analyses, but one thing they do not chart is how much of it could have been driven by emotional investors.

We are inherently emotional beings, after all, and we cannot stop feelings from happening. What we can try to do is prevent our emotions and psychological behaviours from influencing us into making a bad investment decision - firstly, by being aware of how we are feeling, and then going through some mental checks before acting on it in the market.

Unfortunately, most people are either unaware of making emotional investment decisions or are in denial, so they do at times fall into a trap.

"They can't face the reality when they sell their investment and the loss is materialised, because the emotional pain they experience is greater," said Mr Aaron Chwee, head of wealth advisory at OCBC Bank.

Investors may also experience greed and overconfidence.

So what are the biggest red flags to be wary of?

Fear and greed. That includes the fear of missing out, or Fomo, which is a pretty common emotion experienced by many, Mr Chwee added.

When one pays attention to market chatter and to what friends are buying, it could give the impression that a certain company or stock is popular or a good one to invest in. This could lead to irrational decisions and taking excessive risk without doing adequate research.

Take, for example, the meme stock bubble of 2021, when some stocks such as Game Stop surged more than 1,000 per cent, and later petered out. A meme stock is one that sees dramatic price increases due to social media sentiments.

"We've seen this happening in China recently, with young people. After a series of government stimulus had been rolled out, they took out loans to buy Chinese equities, and had no idea how to service the loans," said Mr Chwee.