What is Buyer’s Remorse? And how to deal with it?
Have you ever bought a new pair of shoes that you’ve been planning to buy for a while, but started regretting the purchase as soon as you arrive home? Maybe it was the best deal in the last three months, and you got a discount of over 30% on the original price. Still, you can’t stop thinking that you might have overpaid for that shoe. Or you might start presuming that you didn’t need a new pair of shoes at all and you have wasted the money on it ‘unnecessarily’.
This regret after purchasing a product is called a buyer’s remorse. And don’t worry, you are not different. It happens to everyone.
Nevertheless, purchasing commodities are not the only thing where people feel “buyer’s remorse”. Stock investors are also like ordinary people, and they too feel the buyer’s remorse after purchasing equities. Anybody who has been in the market for a long time might have already experienced investor’s remorse.
In this post, we are going to discuss what actually is buyer’s/investor’s remorse and how one can deal with it.
Investors sometimes feel remorse when they make investment decisions that do not immediately produce results. The guilt is more prominent when the share price starts going down.
Here are a few general questions that come in the mind of every investor in such situations:
“Was buying this stock a mistake?”
“Was my timing right?”
“Did I just buy a lemon of a stock?”
“Is the market going to collapse?”
“What if I lose money?”
Moreover, the investor’s remorse become stronger when people watch the latest news. The TV analysts/anchors make the current facts (which were not available at the time of investment) look so obvious that people start regretting their decisions at once. However, it is always easier to see into the past than to estimate the future. As Warren Buffett used to say:
“In the business world, the rearview mirror is always clearer than the windshield,” -Warren Buffett
There’s a very fair chance that you might have taken the best decision based on all the available information at the time of your investment.
- Investing Psychology: Winner’s Curse
- Get Rid of- Confirmation Bias For Good!
- The First Golden Rule of Investing -Avoid Herd Mentality.
- What is Gambler’s Fallacy? [Investing Psychology]
Buyer’s Remorse Effects
In general, there can be two effects of the buyer’s remorse.
- Impulsive decision to return (or sell) the product which may be well reasoned and a smart idea in the first place.
- Justifying the investment and refusing to accept the mistake.
Both these effects can be adverse for the investors.
Leaving your position in a well-researched stock just to get over the guilt is never a good idea. On the other hand, becoming adamant on your investment decisions may be damaging for your portfolio and will prevent you from learning a valuable lesson.
Ways to deal with Buyer’s Remorse:
The best way to deal with buyer’s/ investor’s remorse is to re-examine your purchase (both risks and opportunities).
Stand with your stock if the fundamentals are the same and the reasons for purchasing that share is still valid. On the other hand, if you made a mistake, then fix it.
Here are two additional ways which can help you to avoid buyer’s remorse:
- Avoid impulsive buying or selling: It’s always a better approach to research intensely before buying or selling. Taking an informed decision will build confidence towards your investments, even if they do not show short-term results.
- Have a margin of safety (MOS): If the calculated intrinsic value of a stocks turns out to be Rs 100, then give your calculations a margin of safety of 20–30% and purchase the stock only when it is trading at a price below Rs 70–80. Having a MOS while buying shares will mitigate the risks and safeguard your investments. (You can use Trade Brains’ online calculators to find the intrinsic value of the stocks).
Final tip– Always remember that buyer’s remorse is natural and inbuilt human psychology. But acting or reacting to this guilt depends on the person. The ability to handle buyer’s remorse will make you a better investor.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting