Have you heard of Shiny Object Syndrome?
It’s the condition of being distracted by “shiny” new things.
Fad diets, the latest gadgets, endless New Year’s resolutions and yes…new stocks.
Shiny Stock Syndrome is the financial version of Shiny Object Syndrome.
If you’ve ever bought a new stock without doing research or feel like you’ve missed on out an investment…then you might have Shiny Stock Syndrome.
What if you miss out on the next Amazon, Netflix or Tesla? You don’t wanna be a dunce, do ya???
In other words, it’s financial FOMO.
Hi, my name is Oz and I’m a cryptoholic…
During the cryptomania of 2017, I bought several obscure cryptocurrencies thinking they’d simply go up. I did very little research on some of these cryptocurrencies. Some of these, like LINDA coin, are basically defunct.
I lost money. Luckily, I didn’t lose my shirt by holding more worthwhile crypto.
That’s how I experienced Shiny Object Syndrome first hand.
Thankfully, there is a solution to this pernicious mental condition.
“Is this better than what I already own?”
Shiny Stock Syndrome is an expression of the novelty effect. This is the bias towards preferring something just because it’s perceived as new.
After all, we like to read “news” …and not “olds.” (Hey, I gotta drop at least 1 dad joke in here.)
To counter the novelty effect, we can take advantage of another bias: the endowment effect, which is the preference for something we already own.
Use the endowment effect to pay as much attention to stocks you already own, compared to hot new stocks.
This insight from a Motley Fool podcast really stuck with me:
…for every new stock I add to my portfolio, I want to add to an existing business as well. If I truly don’t feel confident enough to add to any of my existing businesses in my portfolio, then maybe that says to me, “Hey, you should probably sell one of these businesses if you don’t really like it that much.”Emily Flippen, Motley Fool analyst
So I’m adding this to my list of heuristics for investing.
- If a new stock isn’t more compelling than current stocks, hold or buy more of what I already own
- If my current stock becomes less compelling, then I should be willing to trade it for new stock
Of course, you don’t have to sell a stock you already own. But this is a good thought exercise for practicing specificity. That can look like…
- Listening to CEO interviews and following them on Twitter
- Reading through a company’s financial statements
- Subscribing to a company’s investor relations’ newsletter
To leverage ownership bias for good, we should be as into our current investments as we are new ones.
TOMS Shoes pioneered the One for One model of giving 1 product away for every purchased shoe.
Individual investors like you and I can
borrow steal the One for One model to build conviction in our investments:
“Any time I want to buy a new stock, I have to buy a stock that I already own.Emily Flippen, Motley Fool analyst
For every new stock I add to my portfolio, I want to add to an existing business as well.”
Yes, this means counteracting Shiny Stock Syndrome with….Stock Hold Syndrome 🤣