Home / Markets / Stock Markets /  How to deal with FOMO based rally in US stock markets?

By Pratik Oswal

There's a huge amount of FOMO (Fear of missing out) happening in the US markets right now. Amateur investors have made a killing in everything they have touched over the last year. It's led millions of retail traders to open brokerage accounts due to FOMO and are now driving markets to even bigger heights. On the other hand, investors who have already invested large sums are now sitting on large profits and jittery about what to do next.

In India - International funds have seen record flows over the last 12 months. With international investing becoming a big theme and as more and more investors accept global diversification - it's essential not to get caught up by the high returns generated. Let's keep in mind that high returns in the past in a particular asset class rarely continue over long-time periods. Investors jumping in today due to missing out on past returns will mostly not fare well over the long-term.

How does an informed investor make sense of all this?

A prudent international investor should do the below:

> Not give in to FOMO - We have discouraged investors from giving in to FOMO. The real reason for buying international funds remains diversification, dividends, and lower volatility. We have been encouraging our investor base to do SIPs instead of lump sums - looking at valuations and uncertainty today.

> Re-balance portfolios - For investors in our funds who have been investing in our international funds for many years, we advise them to maintain their asset allocation. What does that mean? Suppose international funds target allocation was 30% and has now risen beyond 35%. In that case, we are advising to cut exposure and re-invest in other asset classes. Cutting winners is one of the most challenging things to do in investing - but it is also one of the most important.

> Investors with low exposure to international markets are advised to continue to build their allocation. Advice would be to do it slowly.

> Stay away from speculation: History says that 90%+ speculators don't make money. Most of them lose money. Investors who are trading with the impression that they are building their wealth should keep this in mind and remember that all the best investors and entrepreneurs create wealth via compounding, which takes many, many years. Getting rich slow is boring - but that's, unfortunately, the only proven way.

(The writer is the Head Passive Funds at Motilal Oswal AMC. Views expressed by the writer are his own.)

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