====== Chase ======
Chasing a stock is the investor's equivalent of running after a bus that’s already speeding away from the stop. It’s the act of buying a security after its price has already experienced a significant and rapid increase. This behavior is typically driven by a powerful psychological cocktail of greed and the [[FOMO]] (Fear of Missing Out). Investors see a stock's price soaring on the news or social media and, fearing they'll miss out on "easy money," they jump in without proper analysis. From a [[value investing]] perspective, chasing is a cardinal sin. It flips the core principle of buying low and selling high on its head. Instead of patiently seeking out undervalued companies and purchasing them with a margin of safety, the chaser buys high, hoping to sell even higher. This often means paying a price far disconnected from the company's actual [[intrinsic value]], making it a form of speculation rather than sound investing.
===== The Psychology of the Chase =====
Why do otherwise rational people chase hot stocks? It boils down to human nature. Our brains are wired to follow the herd. When we see everyone else seemingly getting rich from a particular stock, it triggers a powerful urge to join in. This "social proof" can feel more compelling than any spreadsheet or financial report. The media amplifies this effect, with headlines breathlessly covering the latest "ten-bagger" or "meme stock." This creates a feedback loop: rising prices generate hype, which attracts more buyers, which pushes prices even higher. In this euphoric state, fundamental analysis is thrown out the window. The focus shifts from the quality of the underlying business to the momentum of the stock price itself. The chaser isn't buying a piece of a company; they're buying a lottery ticket that they hope someone else will buy from them for more.
===== Why Chasing Is a Value Investor's Nightmare =====
For a value investor, chasing a stock is not just a bad tactic; it's a complete betrayal of the philosophy. It systematically exposes an investor to unnecessary risk while dramatically reducing the potential for long-term rewards.
==== Paying a Steep Price for Popularity ====
The foundational principle of value investing, as taught by [[Benjamin Graham]], is to always demand a [[Margin of Safety]]. This means buying an asset for significantly less than your estimate of its intrinsic value. This discount provides a buffer against errors in judgment, unforeseen business problems, or a general market downturn. When you chase a stock, you do the exact opposite: you often pay a premium. You're buying at a point of maximum optimism and, therefore, maximum price. At these elevated levels, the margin of safety is non-existent. Even a small piece of bad news or a shift in market sentiment can cause the price to plummet, leaving the chaser with substantial losses.
==== The "Greater Fool" Theory in Action ====
Chasing a high-flying stock is a classic example of the [[Greater Fool Theory]]. This isn't an investment strategy but a speculative hope. The theory suggests you can make money buying an overvalued asset because there will always be a "greater fool" willing to pay an even higher price for it. While this can work for a while in a booming market, it's a dangerous game of musical chairs. Eventually, the music stops, and there are no greater fools left to buy. The last person holding the asset is left with the loss. A true investor makes money from the company's operational success—its growing [[earnings]], strong cash flow, and a solid balance sheet. A chaser relies solely on market sentiment, betting on the psychology of others rather than the performance of the business.
===== How to Avoid the Chase =====
Resisting the urge to chase is a key discipline that separates successful long-term investors from speculators. Here’s how to stay grounded when everyone else is losing their heads.
==== Stick to Your Strategy ====
The best defense against FOMO is a well-defined investment plan. Know your criteria for buying a business.
  * What price-to-earnings ratio is acceptable to you?
  * What [[debt levels]] are you comfortable with?
  * What kind of [[profit margins]] do you look for?
If a company's stock price soars beyond your pre-determined buy zone, you simply don't buy it. It’s no longer an opportunity //for you//. Let it go. There will always be others.
==== Do Your Own Homework ====
Never buy a stock based on a tip, a tweet, or a headline. Perform your own [[due diligence]]. Read the annual reports, understand the business model, and analyze the financials. Create a [[watchlist]] of wonderful businesses you'd love to own. Then, be patient. As the legendary [[Warren Buffett]] said, "The stock market is a device for transferring money from the impatient to the patient." When one of the companies on your list gets hit by temporary bad news or a market panic causes its price to fall to an attractive level, that's your time to act.
==== Embrace Missing Out ====
It's okay to miss a rocket ship. In fact, it’s a sign of discipline. The potential damage from buying a stock at its peak and losing 50% of your [[capital]] is far, far greater than the "pain" of missing out on a gain. Protect your capital first. Opportunities are like buses; there's always another one coming. By avoiding the chase, you ensure you have the capital and the clear head needed to get on board when the right one arrives.