The number of individual investor accounts in Vietnam has increased significantly since the outbreak of the Covid-19 pandemic in Vietnam. As of the end of March 2024, this group of investors reached more than 7.6 million accounts, three times higher than in March 2020, and accounting for 99.2% of the total number of investment accounts in the market, according to data from Vietnam Securities Depository (VSDC). Moreover, individual investors’ transactions also account for about 90% of market liquidity.
Despite their large proportion, individual investors are often heavily influenced by psychology during the stock buying and selling process. When the market rises strongly, individual investors tend to become overly excited, fearing missing out on profit opportunities, and buy stocks at any cost, regardless of whether the stock price is too high compared to its valuation or when the market has seen negative news.
When the market starts to decline, investors’ psychology is initially optimistic, but then as the market falls further, accompanied by negative news, it quickly turns pessimistic, even panic-stricken, and sells stocks in a rush.
With individual investors accounting for a large proportion of total investors and market liquidity, their psychological movements are also considered one of the reasons why the stock market has fluctuated strongly and unusually in the past few years.
Recent trading history shows that many major market fluctuations have occurred, resulting in individual investors learning expensive lessons and losing significant amounts of money.
During the Covid-19 outbreak in 2020, despite the economy being severely impacted by the pandemic, the VN-Index rose by 230%, from 659 points to 1,522 points in less than 2 years. This increase helped the index surpass the historical peak of 1,200 points that had existed for many years and also placed it among the strongest performing stock markets in the world.
In early 2022, when the stock market was trading above 1,500 points, investor sentiment remained very bullish, with many optimistic forecasts accompanied by positive macroeconomic news. There were even forecasts that the VN-Index would reach the 1,600-1,800 point range in 2022, causing many individual investors to rush to buy stocks for fear of missing out.
However, from March 2022, the market began to see a lot of negative news, such as the Fed raising interest rates, wrongdoings at FLC, Tan Hoang Minh, Van Thinh Phat, and the crisis in the bond market, causing the indices to fall sharply. In just 7 months, the market fell more than 40% from 1,524 points to 911 points.
Individual investors then engaged in a sell-off of stocks amid concerns over negative signals. This development had also occurred in 2018, with the overall result being that individual investors suffered heavy losses.
In addition, there is a prevailing mentality in the stock market of wanting to get rich quick. Many investors chase stocks that show signs of price manipulation, such as FLC, ROS, TGG, BII, API, APS, etc., in the hope of making a quick profit. Ultimately, the result is heavy losses when company leaders are arrested and stock prices fall sharply.
As such, individual investors should eliminate psychological factors from their stock investment process.
For investors who do not have much time to research and learn about the stock market, they should consider entrusting their investments to professional stock investment funds by purchasing fund certificates. These stock investment funds will research the market and trade according to the principles they have set. As a result, the fund’s trades will almost eliminate psychological factors in stock investment.
If they want to actively trade, investors need to accumulate knowledge and experience to develop effective investment methods. Investors should start trading with a small amount of capital to practice, and only gradually increase their capital after a period of practice to develop a stable mindset.
In addition, investors should write down their actions for the day and the week in advance. Constantly checking stock price charts can easily unsettle investors’ minds. Therefore, investors should only check the price chart when they are preparing to trade stocks, and the price chart should only show stocks in their portfolio, stocks they are watching to buy, and stocks that affect market trends such as VN30.
Finally, there is the factor of information, which greatly affects psychology. Investors should only follow market and company news on reputable news sites, rather than just consulting social media. At the same time, investors need to analyze and evaluate information, then make forecasts about how this information will affect the market and companies in the future in order to be the best prepared psychologically for trades.
Le Xuan Huy – Personal Financial Investment Expert
