Fear of missing out, or FOMO for short, can influence many parts of our lives. For example, you don’t want to be the first to leave a party just in case it turns into one of those epic “you had to be there” events later on.
Your favorite team is down big with time running out, but don’t leave the game or change the channel unless they pull out one of the biggest comebacks in team history. Of course, there are all sorts of other examples, including investing.
With so much information and so many easily accessible ways to invest, it’s easy to get caught up in FOMO stock investing. You can read an article online or hear about the latest craze and almost instantly use a website or app to invest your money before you even have a chance to really think about it.
This is why FOMO investing is so dangerous. We’re so afraid of missing out on potentially making money, we forget to think about how likely it is you’ll be losing money instead. Too often, we’ll see the stories of people that just happen to buy the right stock or the right altcoin, and suddenly they are millionaires or even billionaires, and we want the same results. We’ll ignore professional investors’ advice and even common sense because we fear that everyone else will become rich and not us.
Common FOMO Stock Investing Crazes
There are many different ways investors can feel FOMO. Here are a few that can cause the most buzz:
With the power to influence thousands of investors at a time, groups like wallstreetbets can take a practically worthless stock and skyrocket its price. Most recently, we’ve seen this done to the AMC and GME(GameStop). There were rumors of the group moving on to other stocks as well.
There are many problems with trying to get into a meme stock. For one, you’ll likely be late to the party, and the stock has already skyrocketed. Now, you can invest and hope more people continue to jump in or wait on the sidelines. FOMO will have us invest and hope more do the same, driving the price up even further.
Eventually, the group will move on, and the stock price crashes, leaving the latecomers to the party with the bill. Basically, the main group members can choose a cheap stock, buy it cheap, manipulate a large following into pushing the stock incredibly high, and then they make the most profit. In all reality, the FOMO investors are handing their money over to the original investors.
With the popularity of cryptocurrency and its potential to make investors rich overnight, there are many times altcoins are the target of similar strategies as with meme stocks. A group will find an altcoin worth a fraction of a penny, hype it up, and watch the FOMO investors pile in, driving the price up.
This can be even more effective since the price of the coins is less than a penny. The lowest meme stocks are typically still a few dollars each. But with such cheap altcoins, early investors get hundreds or thousands of coins for basically nothing. As a result, there have been spikes of coins rising over 10000% in a very short period of time.
Then again, the original investors dump their coins for a big profit while the FOMO investor is left with a worthless altcoin again.
Stocks are the original FOMO, and the biggest FOMO of all comes with IPO’s. Initial Public Offerings (IPO) are when a private company first becomes publicly traded. Typically getting hyped up for months in advance. In recent years, many companies valued at billions of dollars are going public before they are even profitable. Because of their huge valuations, many people will have FOMO that this will be the next big stock.
However, after the initial craze has worn off, many of these stocks fall to their original price or below. This is because investors realize that the stock is not worth holding onto without being a sustainable company or a profitable one.
FOMO is Just Speculation
FOMO is nothing new, just the acronym is. But FOMO is something that’s been around forever, and that’s simply speculation. Any investment that’s ever gotten a hype around it, creates this fear inside us that we’ll be missing out, not getting rich while everyone else does. Of course, like any other get-rich-quick scheme, there are a few examples of it fulfilling its promise of making a select few rich, but for most, it leaves us with a worthless investment in the end.
Technology Makes FOMO Even Riskier
Technology is great, but it can also have some unintended consequences. It’s easier than ever today for any information to spread like wildfire. One post with a little bit of insight or even false information can spread around the world in a matter of seconds.
Compounding the problem is that we can literally invest anytime or anywhere. We can hop on our laptops or phones and invest within a few minutes of reading about the next big thing.
Because of this ease, the volatility of some investments can be out of control. Meme stock prices, altcoins, and others can spike up in a matter of minutes and come back down just as fast. It’s far too easy to take your eye off it for one second and suddenly have lost a lot of money.
How to beat FOMO
Unfortunately, there is no way to stop having the FOMO missing out feeling. There will always be another craze and get-rich-quick scheme to chase. What we need to do as investors to avoid falling victim to FOMO investing is have a plan and stay patient.
Yeah, that sounds boring and slow, but that’s because it is. While everyone else is out there chasing the next big thing and trying to get rich overnight, you can sit there quietly watching your net worth grow year over year. Yes, smart investing can be boring because, let’s face it, nobody really gets excited talking about their latest index fund investment, but the process works.
When you already have your investing funds either automatically invested or tabbed for a specific investment, it will make it harder for you to take that money and invest in a FOMO craze. That’s really all there is to it.
Is it okay to have a certain amount set aside for a riskier investment? Sure, everyone needs to have a little fun, but make sure you keep your FOMO investing to less than 5% of your total amount. This way, you can say you’re in the game, but you’re by no means relying on it.
FOMO investing is nothing new, but the way it happens is. Technology allows information to spread quickly. With basically real-time investing, it’s far too easy to put money into a bad investment before we can think about it. Meme stocks, altcoins, and unicorn IPO’s will look fun and exciting, but more than likely, you’ll be putting your hard-earned money into somebody else’s pocket. Avoid FOMO investing by having a plan and sticking to it.
Jeff is a fan of all things finance. When he’s not out there changing the world with his blog, you can find him on a run, a Mets game, playing video games, or just playing around with his kids.