Now any advice to enable you to avoid the sensation of ‘investing fear of missing out’ (FOMO) is very easily dispensed, unfortunately, it will take an absolute ton of self-control to execute!
Because for as long as I have been venturing into share markets (over 35 years) I too have been afflicted by varying degrees of the FOMO curse and know just how hard it is to resist at times. But I can assure you, that if left unchecked, it will certainly cost you money!
FOMO is a direct result of crowd behaviour. And therefore understanding crowd psychology will go a long way towards fully appreciating the effects it has on us and our investing. So without spending the next 5,000 words discussing various behavioural theories, I like to think about it as a phenomenon that you actually discovered back in primary school.
Do you recall when the teacher asked a question of the class and the answer had two alternatives? Now you knew the answer, but the teacher’s first response for the class to choose from was wrong. But low and behold when the teacher asked for a show of hands everyone in the classes hand shot up!
And even though you were totally convinced it was the wrong choice, the pull of the crowd, and all that goes with that, felt a much safer bet than to be an individual of independent thought on this occasion. So you quickly joined the crowd response!
Now you surely know how this vignette ends. Of course, you were right, and everyone else was wrong and no doubt you probably recall examples where you’re still kicking yourself for not believing in yourself after all these years.
Well, that’s FOMO in action. A phenomenon where you fear missing a profit because everyone else you believe is surely making one. And if so many are doing it must be ok and therefore perfectly ok for you to do it! So let’s follow the crowd!
FOMO is actually the basis of the final throws of each and every investment boom in both share and property markets. Crowd behaviour is a powerful magnet, and an individuals reasoning for investment is quite simple if everyone’s doing it, why aren’t I.
Now in very basic terms, if you were, to accept this premise i.e. that people have joined the boom just because everyone else has and they also are suffering FOMO, then you must also recognise that you are actually following a very uneducated group of people who you’re quite happy to take as role models and proceed to gamble your hard-earned money! Absurd really!
In relation to this current boom, there has been copious articles, posts and interviews by long term professional fund managers and market participants who are not only impeccably qualified but have long term involvement in markets and can access some of the most detailed historical research available in order for them to form an opinion.
And all of them, without exception, are suggesting the current boom is going to end with an almighty crash, either matching the previous lows or even exceeding them. Each and every opinion has left them scratching their head as to the quality of this boom and most certainly it’s longevity.
On the other hand, there has been a surfeit of brand new investors hopping onto what they perceive as an indestructible gravy train of index investments who have paid absolutely no regard to even the most cursory of market analysis let alone conducted any form of security analysis. Rather, for them, it’s the crowd that’s enough to sway them, and a strong desire not to miss out!
Now if we were talking about a group of doctors who were diagnosing a serious medical condition with yourself, I kinda already know that you would certainly defer to them, experts in their field, rather than take the opinion of the person you might have been discussing your illness with, whilst in the waiting room before your appointment! (Even though they may have been a very competent electrician in their day!)
So why isn’t anyone deferring to the expert opinion? FOMO that’s why. Follow the crowd, they can’t be wrong. All those millennial ‘traders’ in lockdown, convinced about the ‘buy the dip mantra’ that served them so well during the bull market are totally ignoring the unequivocal connection between basic economic conditions and share trading. And it is this group who are fueling markets and giving you a bad case of the FOMO’s
So I could have discussed in this answer that you need to formulate an investment plan describing your goals and your investment methodology as the first step in overcoming FOMO.
I could have also expanded on the need for thorough research into investments and developing a filter to weed out weak candidates for your portfolio. Additionally, I could also suggest you should widen your reading and research into the market history, crowd behaviour and how some of the worlds great investors tackle these conditions.
And I could also recommend that you visit the ‘Dutch tulip boom’ back in the 1600s just to show you that these type of events are nothing new and have occurred with regularity since.
But I prefer to just remind you of the quality of the investor driving up the current market compared to those that have, by and large, chosen to sit on the sidelines. Research these two market participants and I am sure it will cure your FOMO.
I have many posts on Investor Tuition that discusses booms and busts but if you wish further reading start with this one Time in the Market? – No thanks! and this one as well The Miracle of the current Bull Market! (Enjoy it while it lasts?)