Investing FOMO (Fear of Missing Out)

Investing FOMO is the fear of missing out on stock market gains. Watching stocks you may have nearly invested soar to new highs while you sit on the sideline. Investing FOMO can make you feel anxious, depressed and behind your peers.

Investing FOMO is extremely common. It’s the phenomenon where you watch a stock make large scale market moves and you realize you missed out on the opportunity. Like Tesla going from sub $300 a share to over $900 a share in just a few days in February of 2020.

You spend the next hours, days, weeks thinking about what could have been, the gains you could have realized and the bragging rights you’d have in the workplace.

This type of self-talk rumination is damaging to your psyche and your retirement goals.

Looking backward, of course, you made a mistake by not investing, but there’s no possible way you could see the future. We have to realize that we’re making the best decisions in the moment with the information available to us.

How Does Investing FOMO Happen?

FOMO is a product of the social media generation. I describe it as a form of anxiety that stems from watching other people’s “highlight reel” played out on their social media accounts.

Relating it to investing, it can be watching a stock like Tesla make massive gains in a very short term and realize how close you were to investing when they were still priced below $300.

Investing FOMO can be looking at the total stock market gains over the past 10-years and feeling down because you were under-invested.

FOMO for me has taken the form of anxiety and a feeling that time is running out. That there won’t be another opportunity like Tesla.

I’m writing about this because it literally just happened.

This has happened several times in my life, first with Netflix, then with Facebook, now with Tesla.

I’ve been right on each of these and my gut feeling was to invest. The reason I didn’t was a fear of risk and that it breaks with my long term philosophy. It’s hard knowing I was right, and “missing out” on the potential monetary reward.

Total Stock Market Investing FOMO

Even long term investors can be victims of investing FOMO. Take a look at the 10-year S&P 500 chart below. The far left represents the end of The Great Recession and the result is the longest bull run the country has ever seen.

Image of the s&p 500 stock chart after the great recession.

I imagine there are many people out there who were underinvested in the market in 2010. Remember the panic, the fear, the selling?

People were no doubt worried about putting their hard-earned money back into the market. This bull run has more than likely been a major source of FOMO for millions of people who feel they “missed out” on stock market gains.

 Avoid Investing FOMO

The fear of missing out is a huge issue in society today. Commonly referred to as “keeping up with the Jones’s.” That saying doesn’t fit the social media generation. FOMO better describes the phenomenon.

We can avoid this feeling if we cut out social media, but you don’t have to.

Here’s how you can reduce Investing FOMO in your life:

  • Practice gratitude for what you have in your life

  • Realize social media is a highlight reel

  • Understand that nobody is perfect

  • Openly communicate your feelings to a close friend

  • Realize most investing influences are frauds

  • Educate yourself on the success rate of day trading

  • Run a FIRE calculator to ensure your math checks out

  • Stop following day traders

  • Start following people with long term investment philosophies

  • Reiterate your long term investing philosophy

  • Realize you don’t need big wins to reach financial independence

  • Understand the compound effect

  • Focus on increasing your income

  • Realize you’re ahead of the average person by asking these questions

  • Cut yourself some slack and take a breather

Focus on the Long Term

If you’re working on becoming financially independent it’s likely that you're taking a long term stance on investing. That’s perfect for avoiding investing FOMO!

A long term investing strategy does not hinge on you picking the Tesla’s and Netflix’s of the world. Rather than picking the needle in the haystack, you’re buying the haystack (hopefully).

I understand Tesla isn’t in the S&P 500 (yet), but many companies in the S&P 500 or total stock market funds are going to benefit from the move from ICE vehicles to electric vehicles.

If you’re new to the financial independence retire early movement, you can get started here.

You simply need to average around 8% for a decade or two to reach financial independence at some point in the future.

While it would be cool to brag about you going “all-in” on Tesla before they become a trillion-dollar company, it’s simply not a requirement in the grand scheme financial independence.

Hindsight is 20/20

In my early 20’s I learned that I had to stop trying to analyze my failed stock trades from a hindsight perspective. It can be beneficial to learn why you made a bad trade, but it needs to be with the understanding that you’re not a fortune-teller.

Reading financials, charts, technical analysis, fundamental analysis, etc… is always done using historical information. Information from events that have already happened.

While it can be a helpful indicator, history isn’t always predicted by past results.

Of course, I can see what went wrong by looking back after the fact, but it isn’t typically obvious in the moment.

In the moment, you have emotions, expectations, bias, and other factors in the mix that have the potential to cloud your judgment.

If you’re looking at historical charts and “what could have been” cut yourself some slack. If it causes you anxiety, then don’t do it.

Investing vs Speculating

If you have a strong FOMO when it comes to seeing stocks like Tesla breaking out above all resistance, then you may be a speculator.

Speculating is generally defined as “form a theory or conjecture about a subject without firm evidence.” or from a stock standpoint, “invest in stocks, property, or other ventures in the hope of gain but with the risk of loss.”

The words, “without firm evidence” and “hope” are the keywords in the definition of speculating. I put it in the same ballpark as gambling.

According to Benjamin Graham the father of value investing and author of The Intelligent Investor, “An investment operation is one which, on thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”

Reserve 5% for Speculating

I enjoy stock picking. I’ve always been fascinated with stocks, charts and technical analysis.

It’s a form of entertainment and escapism for me to buy some Twitter when I see it’s undervalued, and sell it a few months later for a decent gain.

I bought Twitter in December 2019 at $30.23 a share and sold it in February 2020 for $33.34 a share. Then I watched it breakout after earnings to $39.00 a share and my investing FOMO kicked in.

I would define this as any individual stock purchase. It’s not the most effective way to build wealth and it’s extremely risky, but something about buying a few shares of a fast-moving momentum stock is appealing to me.

I realize it’s not sustainable, nor is it worth risking a large part of my family’s future nest egg. I reserve no more than 5% of my total investment dollars for individual stock picks like this.

Similar to having an allowance in your budget (money you can spend however you want), it’s a guilt-free way for me to scratch that itch. I have found that using a very small amount of money in this manner keeps me from risking the larger portion of our investment dollars.

Can FOMO Drive Stocks Higher?

I believe part of the recent stock market rally (2019-2020) has in part been fueled by FOMO. There seems to be a numbing effect in play.

The market has been good for so long (10 years) that people may be forgetting the reality of the market. It goes up and it goes down.

We saw the same thing happen with Bitcoin. When it went over $20,000 “experts” were claiming it would never drop, that it’s a new normal, etc…

This blind support is dangerous and I think a lot of people are going to lose and lose big. So many people want to participate in the strong economy that they’re willing to pay a premium for exposure.

Those who dollar-cost-average (like me) are relatively safe from major market downturns. We will invest no matter the weather outside. Be careful in having FOMO about the current market situation.

If you’re new to the market, I would consider easing in over the course of months, rather than investing all at once.

Summary

The fear of missing out (FOMO) can invade your life and affect your well-being. Investing FOMO is a major cause of anxiety when getting started on the path to financial independence.

Your path is slower and less sexy than your peers or internet guru’s who seem to only tell you about their big wins. You must realize that social media (Instagram, Facebook, YouTube, Twitter, etc…) is only a highlight reel. It’s not reality.

The truth is, you don’t need the big wins in order to reach financial independence. You simply need the ~8% average total stock market return over the course of 20-30 years. If you want to speed it up, invest more.

Temper your expectations, and if you’re an influencer, share your losses. It will give you credibility with your audience and set you apart from other financial guru’s.

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