Fear of missing out: why people buy at the highs

An asset has risen, everyone is talking about it, and delay starts to feel expensive. The feeling is real; its basis is not.

The mechanism

Attention to an asset grows with its price: the sharper the rise, the more is written about it. So by the time you heard of it, a large part of the move had already happened.

The motive "it is already rising" puts you at the back of the queue by construction.

What it looks like

Abandoning your own plan. Increasing position size against your rules. Buying without study — "I will figure it out later". All three appear together.

The mirror effect

The same mechanism works on the way down: panic is amplified by attention and produces a sale at the worst point. The cause is identical — the decision follows the behaviour of the price rather than the properties of the asset.

What helps

A predefined list of what you buy and a predefined position size — How many securities to hold.

Scheduled regular purchases: they remove the decision about when to enter — Regular purchases of equal amounts.

A pause. A decision postponed by a day is almost always better than an immediate one, and for an investor with a horizon in years the cost of the delay is negligible.

Related: Eight mistakes of the first year.