Recently I bought Fastly stock (symbol FSLY), and that wasn’t the problem. This was.
I bought at the top and held onto it even when I felt like I should have gotten out and waited.
Investing isn’t all about feelings. But we should follow our gut. Let me explain.
My feeling wasn’t that I was afraid to lose money. I’ve taken positions that I felt fine or less un-fine when the stock price dropped, and I was “losing” money. I wrote a whole post about it here. That doesn’t bother me that much because I got the stock at a better price, or I was more confident that it would continue to go up.
But when I bought Fastly, I didn’t. The same feeling wasn’t there. No, it didn’t feel right.
The price was super high, shooting up all year. It was up over 500%. And it wasn’t clear if it would be able to keep up that pace. And I felt unsure about it.
But I got greedy. You know that feeling of I-got-to-get-in-too-so-I-don’t-miss-out kind of feelings? Yeah, FOMO. That’s what happened to me this week. So I jumped in, undisciplined and greedily.
Now, I’m not saying I regret buying it totally and utterly. No. I regret buying it then, this past Tuesday for 133.50. Yes, I do. I bought way—too—high.
There are times to buy a stock when it’s “high,” but this was not one of them, and my gut was telling me so. But I didn’t listen.
Following your gut in the markets can be tricky. It’s hard to figure out.
It takes time.
For instance, when something inside of you that’s primal tells you (or screams at you) to sell a stock right after it drops because we humans hate to lose money, that’s not your gut. That’s different. That’s our lizard brain at work. And that type of thinking has a name.
It’s called loss aversion.
That means we feel the loss of money, or, really, anything, more than when we gain. It’s strange, but true. So when you lose $100, that will make you feel more pain than the happiness you would feel if you gained an equal amount.
Loss aversion is not the gut.
The gut works with reason and experience. It synthesizes information in your subconscious, and it murmurs a quiet little voice that whispers hushed thoughts that help guide you. It lets you intuit things like a certain sector might catch fire (in a good way) or when a stock might be the right pick or, in this case, a stock price was too high to enter, and it’s better to wait.
I’m not saying that Fastly isn’t a good investment. I think it is. I don’t believe that the stock price will go to zero and think the company will continue to grow.
But I didn’t listen to that little voice inside of me this time. And now I must live with the consequences. The stock dropped 30+% since I bought it.
But it’s not the end.
That’s what I love about investing in the market. A mistake needn’t kill you. If you learn from it, you can recover.
You can even thrive.
Learning is key.
Disclosure: None of this is investment advice or the like. It’s just one investor sharing his learnings and stories. Consult a professional advisor if you want help in investing.