The Motley Fool

Is the fear of regret damaging your portfolio?

Here’s a tale of two investors and two companies. Our first investor holds shares in Company A and considers selling them to purchase shares in Company B. Let’s say Company B is Boohoo.Com (LSE: BOO). For whatever reason, this never happens and yet, a year later company B’s shares have trebled in value (which they actually have). 

Our second investor holds shares in Company B but sells them to buy shares in Company A. As above, a year later and Boohoo’s shares have soared 300%. While both investors are unlikely to be happy, which do you think feels worse?

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Most people would point to our second investor. But why?

Why regret hurts

Losing money feels worse than not making money. If we had to choose, the vast majority of us would prefer to be the first investor and yet the only difference between the two is that one did nothing (which tends to be the attitude of most towards their personal finances) and the other acted. In both situations, the ‘loss’ was equal. The conclusion: do what everyone does and you’ll experience less regret.

The fear of regret is normal but irrational. It explains why we act more conservatively than we should. It’s why we hang on to possessions despite never using them for years — the remorse we may experience if they’re eventually needed is too great to contemplate. It also explains why some people, despite having long investing careers ahead, only consider ‘safe’ FTSE 100 companies for their portfolios. Truth be told, these investors may be better off buying a cheap index tracker or ETF that tracks the market if their fear of regret is particularly strong.

Beware ‘last chances’

There are drawbacks to being passive, though. Imagine you’ve found the perfect company. The balance sheet looks solid. Revenue and profits are rising. The product/service offered by the business looks unbeatable. For whatever reason however, you fail to buy the shares. Suddenly, they’re up 10%. The next day, another 10%. You start thinking: “This might be my last chance to buy the shares before they truly rocket. If I wait, I’ll miss out on MASSIVE profits.”

This, of course, is no different from booking tickets to see your probably soon-to-be-retired favourite band. They won’t be around much longer and neither will the shares at this price.

So you do it. Here, the fear of regret is magnified by a ‘last chance’ offer: a situation in which something becomes more desirable because time is (apparently) running out to buy/experience it. More often than not, the share price falls back in the next few days as traders take profits and interest dies down. Your desire not to miss the boat has led you to pay more than you originally intended. You could still do very well but, ironically, only time will tell.

To counter the fear of regret, we need to understand that while some boats never return, many do. Share prices never rise vertically and any pullback may represent another opportunity if the investment case hasn’t changed. Moreover, there will always be other boats waiting to set sail. Let’s agree to focus less on what we should have done and more on finding companies whose future prospects appear so bright that they mitigate any perceived risk from purchasing the shares.  

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Paul Summers owns shares in The Motley Fool UK has recommended We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.