Herd effect on investments increases risk of loss
The rise of some assets and the viralization of investments on social media have led investors to enter the market without understanding exactly the risks involved.
For Bernardo Pascowitch, presenter of Resenha do Dinheiro, many end up buying assets just because they started to rise quickly.
"When an asset goes viral on social media, the price has generally already risen, and whoever enters at that moment ends up buying other people's enthusiasm, not the real value of that asset", he states.
The behavior is known in the market as FOMO, an acronym in English for "fear of missing out", and usually appears in moments of strong euphoria.
"Making a decision because 'everyone is winning' is outsourcing the judgment to the crowd, which historically tends to make mistakes in the most extreme moments of the market", he explains.
Felipe Sant'Anna, investment specialist at the Axia Investing group, assesses that this behavior grew mainly after the entry of new investors into the market during the pandemic.
"Many people started investing without understanding the market exactly and ended up being influenced by 'fads', influencers and promises of quick profits", he observes.
According to the expert, the movement appears in different types of assets, from shares and cryptocurrencies to IPOs and financial products with high returns.
"Some believe that a certain share will continue to rise or that a company will be the next big opportunity on the market and end up investing money without analyzing the risks. This happens a lot in IPOs, when the investor believes that they are entering the beginning of something great and ignores the risks", explains Sant'Anna.
In addition, it is important to understand the difference between price and value of an investment.
"An asset rising 300% does not mean it is worth 300% more. It just means that more people want to buy that asset. They are completely different concepts", says Pascowitch.
In this scenario, financial decisions are also born from emotional factors. For Soraia Pena, a behavioral psychologist, when there is a promise of quick profit, immediacy takes over the individual and the decision becomes reactive.
"It is important to understand whether the objective is to build wealth in the long term or just to alleviate momentary anguish", he says.
To avoid this type of behavior, Pascowitch highlights ways to identify whether an investment has fundamentals or whether it just depends on market excitement.
"Does the company have revenue? Is price growth accompanied by earnings growth? Can you explain in a few sentences why that asset is worth its current price? If the answer is just 'because it's rising a lot', we're probably talking about hype", he analyzes.
Despite the risks, investors can even allocate a small portion of their assets to more speculative assets, as long as they understand the risks involved.
"It is possible to invest in assets that are experiencing moments of great hype and euphoria, but it is necessary to understand that this is closer to a bet than an investment. In these cases, the ideal is to commit only a small portion of the assets, which would not be needed if the asset goes to zero", ponders the presenter.
Dinheiro Review
Carried out with the support of B3 and the investment manager BlackRock, the program is presented by Thiago Godoy, the "Financial Daddy", Marilia Fontes, founding partner of Nord Investimentos; Bernardo Pascowitch, founder and CEO of Yubb, proposes a light, direct and uncomplicated approach to topics related to financial education and investments. The attraction addresses the main themes of the economy weekly with the informality of a conversation between friends - without compromising on analysis.
The Money Review airs every Friday, at 7pm, on the CNN Money YouTube channel and on Sundays, at 3pm, on CNN Brasil.
Source: CNN