Sunday, December 23, 2018

All About Price: Buyer/Seller Remorse and Premorse

This is part of my intermittent series on price, one of the most important and commonly encountered considerations in investing and trading. In this post, I will touch on a common psychological experience that most, if not all, of us had gone through; buyer/seller remorse and premorse.

Buyer/Seller Remorse

Buyer/seller remorse, in the context of investing/trading, is an emotion of regret that is felt after executing a transaction. The most common question stemming from this remorse is “Did I buy/sell at the right price?”. Such feelings will get amplified if a buyer buys at a price, only for it to go down lower later on, or for the seller, to sell at a price, only to see it going higher afterwards.

Buyer/Seller Premorse

Yes, there is this thing called buyer/seller premorse (OK, I made up that term, but I find it appropriate for the occasion). It is when one has set a buy/sell price, and seeing the buy price going lower (or the sell price getting higher), he/she will adjust the buy price lower to get the most bargain (or adjust the sell price higher to maximize profit), only to see it not transacted by the end of the trading day. Worse is, on the very next day, the price does not go back to where you want them to be. Ouch.

It’s A Jungle Out There

The financial markets contain a myriad of individuals and organisations transacting securities at a furious pace, and each one of them has a different target buy/sell price. Value investors will use their different valuation methods to transact; traders will use volume and trend to enter/exit the markets; and some will just use their gut feel and press the buy/sell button (while praying for hope). 

With all these goings-on, you would need to possess either tremendous skill or sheer luck to buy at the lowest or sell at the highest at any given period.

Preventing Remorse And Premorse

For buyer/seller remorse, the best way not to think about it is to be forward looking. A decision was done and there was no way to reverse it, so rather than wasting time brooding over it, it is better to start thinking about your future investment/trading plans and strategies. Treat it as an experience and just move on.

For buyer/seller premorse, you can come out with a range of prices based on your fundamental and/or technical analysis. Once this range is set, stick to it until the transaction is done or there are some situational changes that you need to recalibrate the range.

There is no right or wrong price to enter or exit. Either way, if you think that the price you bought at is a bargain or the price you sold at is a profit, then be content with it.

Merry Christmas!

Check out the other post in my All About Price series.

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