FOMO (Fear of Missing Out)
“Can I keep everyone focused on the big picture and their true financial objectives in a get rich quick environment that’s turned the markets into a 24 hour virtual casino?” – Downtown Josh Brown
My friend Josh Brown celebrated his 44th birthday on February 25th (Happy birthday Josh) and he wrote that sentence on his blog. It got me thinking about myself, the markets, Baird’s clients, and how we’ve entered this weird World where NBA highlights are selling for thousands of dollars and lines of computer code are worth $50,000 a “coin”.
Now look, I’m not here to rage about that or tell you those things are obvious bubbles. First, who am I to say anything is a bubble and second, if a bunch of people think something is true that is a powerful force. Homes, Bitcoin, NBA Highlights, Digital Art, Gold, Stocks, these kinds of assets (whether they are physical or digital) have value because other people agree they do, and the “price” of something is what other people are willing to pay for it not some future cash flow times a discount rate.
Instead, I wanted to use this blog to examine my own FOMO and some of the stories I’m hearing about people with well diversified financial plans seeking to chase fad investments because one of their friends at the club said they made a ton of money on Stellar Lumens (I literally have no idea what that is but apparently it’s a thing).
It’s really hard to watch other people get rich and not want to join in, especially in this version of the World where throwing money at something requires pushing a button on a phone. Magnify that by the fact that we are ensconced in a 24-hour social media cocoon where people flaunt their “gainz” like they are Cortez who just discovered the New World.
I’ll admit, I get FOMO badly. Why? Because I’m a human being and I have a brain wired for things like envy, greed, and gluttony (I ate half a bag of Cheetos the other day).
The question you (and I) need to ask ourselves is “what kind of an investor am I?” How have I acted in the past because that’s probably the best indicator of how we’ll act in the future.
Did you sell in March 2020 because you couldn’t handle the COVID crash? Did you let politics impact your portfolio last November? If you answered yes to one (or both) how are you going to handle the unprecedented volatility of high beta Growth stocks or crypto? If stock market selloffs and political views can make you course correct are you really geared to invest in stuff like this?
Bitcoin, for example, has had multiple 60% drawdowns in the past three years and 30% selloffs are fairly common. What would happen to the value of digital collectibles if all of a sudden people get bored with them?
Growth stocks, which have caused many investors in well diversified plans to chase them due to FOMO, are getting smashed right now because the market is expecting economic growth to SOAR in the near future and that style of investing would be out of favor. What if you end up with a portfolio of stocks that goes nowhere (or down) while you watch the economy BOOM because that could happen if you’re in the wrong names.
Advisors have a fiduciary duty to their clients to act in their best interests, that means setting investments to meet the goals of a financial plan. If the plan has changed to “I want to get rich quickly on fad investments and chase the hottest sectors of the market” how can those two plans co-exist alongside the fiduciary responsibility?
That being said, there is a more nuanced take to all of this. If you’ve meticulously funded your big picture with a well-diversified plan, basically committed to eating your peas and carrots, it’s ok to dive into that ice cream sundae from time to time, just do it responsibly.
Again, we are only human, we don’t live in financial planning software, if you’re seeking to scratch an itch you must understand that risk and return go hand in hand, so do it in a way that doesn’t threaten your goals.
The absolute best investors have learned to ignore FOMO, in a perfect World no one would care what their friends are invested in or how that person on TikTok did in Gamestop. Warren Buffett once said “It’s insane to risk what you have for something you don’t need” and he’s right, make smart decisions with your money not ones driven by emotion.