The fear of missing out, or FOMO, is a social and psychological phenomenon where individuals experience anxiety or unease over the possibility of missing out on exciting or rewarding experiences, events or opportunities. This term is commonly associated with the pervasive use of social media platforms, where people often share curated and highlighted moments of their lives, creating the perception that others are constantly engaged in exciting activities.
It can also apply to investing as individuals do not want to miss out on potentially lucrative opportunites. However, FOMO can result in several negative consequences and risks as investors may feel compelled to make hasty decisions to avoid missing out, even if they are not well thought out or beneficial in the long run.
FOMO can lead to impulsive spending, especially in the context of investment decisions. Fearing they will miss out on potential gains, people may rush into certain assets or stocks without conducting proper research or understanding the risks involved.
Constantly feeling anxious about missing out on a stock can also lead to stress, burnout and a diminished sense of contentment with one's own life. As such, this discussion takes a look at 10 valuable quotes on fear to help investors not act solely on their emotions, but rather with a more sophisticated approach.
Overcoming FOMO
To mitigate the risks of FOMO, it is essential to practice mindfulness, self-awareness and rational decision-making. It is also important to understand that social media and other outlets often portrays a highly curated version of something that is not an accurate representation of reality. Learning to be content with one's own choices and focusing on personal growth can help reduce the influence of FOMO on your investing strategy.
First, it is important to remember, as author and investor Michael C. Thomsett said, "The fear of missing out is the investment killer."
This means that FOMO can lead investors to make impulsive decisions that are not in their best interests. If you are afraid of missing out on a good investment, you are more likely to buy into a hot stock or trend without doing your research. Investing is not gambling, so it is always prudent to apply a solid risk management plan.
Ben Carlson reminds us that "FOMO is a powerful emotion that can lead investors to make poor decisions."
This quote it emphasizes the fact that FOMO is an emotion, not a rational thought process. If you are feeling like you might be missing out, it is important to take a step back and think about your investment decisions objectively. Poor decisions are made when you focus on the potential profit from an investment, but neglect its risk completely, especially when it is very high.
Further, PWL Capital's Cameron Passmore advised, "Don't let FOMO make you buy into a stock that you don't understand."
It is important to do your research before you invest in any stock. If you do not understand what a company does or why it is a good investment, you are more likely to make a mistake. Do you perform any financial and fundamental analysis on technology stocks, biotechnology stocks or industrial stocks? These sectors differ a lot, so you must understand their benefits and their risks, and especially the economic cycles that favor some equities over others.
American economist Robert Shiller also cautioned, "FOMO is a trap that can lead investors to lose money."
Shiller warns investors that FOMO can be a costly mistake. If you buy into a stock or trend because you are afraid of missing out, you could end up losing money if the investment goes down. The importance of technical analysis combined with fundamental analysis is crucial, as technical analysis may show that there are extreme conditions that you should be aware of before making a decision.
According to financial adviser Michael Kitces, "The best way to avoid FOMO is to have a plan."
When you have a clear investment plan, you are less likely to be swayed by FOMO. If you know what your goals are and how you are going to achieve them, you are less likely to make impulsive decisions. Your plan must have some specific rules, which you must not ever violate. Discipline is the key to investment success over the long term.
Vanguard Group founder John Bogle is known for saying, "Don't chase hot stocks."
Hot stocks are often overvalued and can be risky investments. If you see a stock that is going up quickly, it is best to wait and see if the trend continues before you invest. Buying the dip and selling the rallies are classic examples of being patient.
The legendary Warren Buffett (Trades, Portfolio), head of Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) also recommends patience. He said,"Be patient and don't try to time the market."
The stock market is a long-term game. If you are patient and do not try to time the market, you are more likely to make money in the long run. Day trading is also riskier than buying and holding a stock. Educate yourself first and control the impulse of trying to find the perfect entry or exit point.
"Investing is about buying assets that you're comfortable holding for a long time," Charlie Munger (Trades, Portfolio) said.
This emphasizes the importance of investing in assets that you believe in. If you are not comfortable holding an asset for a long time, you are more likely to sell it when the market takes a dip, which could cost you money in the long run.
Gotham Asset Management founder Joel Greenblatt (Trades, Portfolio) said, "Don't let fear control your investment decisions."
It is important to stay calm and rational when making investment decisions. If you are letting fear take over, you are more likely to make mistakes. Fear is just one of the many emotions you must face when investing, including anxiety, uncertainty and overconfidence.
Finally, Cambria Investment's Meb Faber said, "The best way to avoid FOMO is to focus on your own goals."
Conclusion
You should focus on your own investment goals and not worry about what other people are doing. If you are focused on your own portfolio, you are less likely to be swayed by FOMO. Having a well-defined investment plan means you are not concerned about the noise that volatility creates daily in the stock market or in other financial markets. You know when to wait for investment opportunities and FOMO is not a concern at all. This is the essence of patient and prudent investing.
If you can stay disciplined and focused, you will be more likely to achieve your investment success.
