Jan 24, 2021 / 15:03

F0 investors learn hard lesson from stock market volatility

F0 investors put their money in stocks they barely know of but were recommended by others, so they become vulnerable when things go wrong and do not know what to do, said an expert.

The majority of new investors in the stock market, known as investor F0, have not experienced market volatility, so recent slumps of the benchmark Vn-Index was seen as a shock for many of them and led to a large sell-off by inexperienced investors to cut losses.

 The rise of the stock market at a time of economic difficulty and low interest rate environment lure new investors. Photo: Viet Linh. 

Despite previous warnings from experts that the stock market would soon go through a correction phase following its steady rise in the past two and a half months, F0 investors continues to pump money into the market in the search for easy profit.

The market finally succumbed and suffered a free-fall by 60.94 points on January 19 to settle at 1,131, down 5.11% against the previous trading session.

CEO of Take Profit Consulting and Investment Company Phan Linh told Hanoitimes F0 investors have been a major cause for such slump, as the sign of market going down triggered a wave of sell-off from inexperienced investors who grew nervous and tried to cut losses at any costs.

Since the Vn-Index plunged to its rock-bottom in March 2020 with a 25% slump, the index has been on the steady rise and ended the last trading session of the year at 1,103.87, representing an increase of 14.9% against early 2020 and 67% compared to its lowest point.

“The rise of the stock market at a time of economic difficulty and low interest rate environment lure new investors,” stated Mr. Linh, but adding the majority of them come in unprepared as they look for quick profit.

“F0 investors put their money in stocks they barely know of, based on others’ recommendations, so they become vulnerable when things go wrong and do not know what to do,” he added.

Data from the Vietnam Securities Depository (VSD) revealed in December 2020, the stock market witnessed 64,243 new accounts, the all-time high number in a month. This resulted in a total of 393,659 new stock accounts in 2020, up 109% year-on-year from 205,013 in the previous year.

Le Quang Minh, analysis director of Mirae Asset Vietnam (MAS), said the participation of F0 investors was key in keeping the Vn-Index going up at a time when foreign investors remained net seller.

“As the Tet holiday is fast approaching and the sentiment of taking profit after having seen the market going up for a while, selling pressure from individual investors would continue to last for the next few trading sessions,” Mr. Minh told Hanoitimes.

Mr. Phan Linh from Take Profit urged investors not to think short-term when investing in the stock market.

“A correction phase is necessary for the market to stabilize before trying to surpass the 1,200-resistant zone, as well as to shrug off a large amount of margin lending for more sustainable growth,” he stated.

“Any decision in the stock market should be based on technical assessment, and not following the herd behavior,” Mr. Linh concluded.