FOMO: noun \ˈfō-(ˌ)mō\

It’s Spring Break time! Do you have FOMO yet?  What is FOMO?

Miriam Webster added this relatively new noun to their dictionary in April 2016, defining it as “the fear that at any given moment someone is doing something more appealing than what we are doing at the time.” Applied to both investing and personal finance, FOMO is an ugly, destructive mofo to be avoided at all cost. Let’s take a look:

Part 1 – Personal Finance

For a look at FOMO in personal finance, look no further than the online poison I call Facebookstagram, coupled with the staggering levels of consumer credit we see today. Financing nice cars, expensive furniture, and fancy vacations is nothing more than using credit to buy things we simply cannot afford. There’s no other way to quantify it and there is no need to try to justify or glamorize it either.

Facebook
A Facebook Touch Graph

In a free country, we freely choose our roles so the choice to become a debtor in order to increase your spending power is a choice most likely driven by FOMO. The reason? We are constantly barraged by high-powered and highly effective advertising promising us happiness if we, for example, drive a certain car. In addition, we are barraged by Facebookstagram where we are promised that supposed happiness our online friends enjoy if we vacation at a certain beach or snap a photo of our dinner at a certain dining hot-spot.

credit cards
A Stack of Fun… What’s in Your Wallet?

The fear of missing out on “the good life” will leads us to do very strange things with our money (or credit cards). Remember, people only post their best stuff on Facebookstagram – you don’t get to see the selfie showing the flood of tears when they open a Capital One VISA bill 30 days after the vacation ends. What’s in your wallet? Pain and heartache, my friend.

NOMO’ FOMO

So how do you avoid FOMO in the realm of personal finance? I’m not sure I have an easy answer, as it is more mind over matter than anything else. I do know without a doubt that it is a mindset that when removed will quickly lead you to financial freedom. I will freely admit I’ve fallen victim to FOMO from time to time but many years ago I feel like a I very effectively replaced FOMO with IDGAFF (I’ll let you figure out that acronym to your own effect).

Here’s the real life look for me: An 18 year-old car with no air-conditioning suits me just fine. A simple vacation to a local trout stream or a nearby town with a micro-brewery is all I need. I own 3 pairs of pants and they are all Dockers. I own 3 pairs of shoes, and my “dress shoes” are 15 years old. I also enjoy a life where I have no debts whatsoever. None.

Part 2 – Investing

In investing, if you have FOMO you are probably late to the party in terms of market returns. You fear missing out on future returns and to put it bluntly, FOMO here is most closely associated with greed. You may hear your friends or those in the news talking about their great successes in the stock market and feel you need to invest with the aim of making as much money as quickly as possible in order to “catch up”. Bad idea.

FOMO drives stock market bubbles in abnormal ways. Think back to the tech bubble of 1999-2000. I knew folks at the time buying stocks in companies they had never heard of and knew absolutely nothing about when these companies were trading at price evaluations that were just plain stupid. Think back to the mortgage-backed bubble in 2008. I knew folks leveraged up to their eyeballs in real estate when home values were climbing 1% a month and interest rates were impossibly low. Even now, in the “everything bubble”, I see folks who were fearful of entering the market as recently as June and July of 2016 who are now pouring large amounts of money into stocks today, having seen the market skyrocket since Election Day.

What is the common driving force in this often irrational behavior?  It’s FOMO – fear of being the guy who might miss the money.

pst_newton-south-sea-bubbleSir Isaac Newton, with an IQ over 150, went broke due to FOMO

Here’s the real life look:  fear + greed = no plan. When stocks suffer poor returns for a long time period, fear can take over and lead an investor to sell at market lows in an effort to stop the bleeding and avoid continued losses. At the opposite end of the spectrum is greed manifested as FOMO. At market peaks, during great gains and market euphoria (like today), an investor can begin to believe prices can only go higher. FOMO Investors will ultimately end up buying near the market high for fear of missing out on future gains. This will begin a new cycle where an eventual decline or “correction” in the market will lead to fear-based selling in an effort to cut losses during a downturn.

Emotion-GraphicBuy high, sell low?  NOT the way to do it…

NOMO’ FOMO…

How do you avoid FOMO in investing? By committing to a long term plan of investing at regular intervals no matter what the state of the market. Do you feel like you missed out on the huge market gains over the past 10 years? Do you fear you’re late to the party and risk a loss if you get started now? Or maybe you feel like it’s now time to jump in so you don’t miss future gains if the market continues to climb? By simply buying the S&P500 index on a monthly basis in the past, present, and future you’ll avoid the regret, you’ll conquer the fear, and you’ll capture the reward.

The Goal:

Owning stocks means you are enjoying the profit produced by the working efforts of others (the wage earners) and you’re profiting from the mass consumption of others (the spenders). Owning bonds means you are making money by letting others use your money (the debtors – governments or companies borrowing money or consumers borrowing money to buy a home). Owning real estate means you are making money by allowing others to use your property (the renters or the lessors). See the common theme here?

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Put your money to work!

Put your money to work for you so that you are investing in FOMO from the other side of the market spectrum – you can’t stop FOMO in others, but you sure can profit from it! At the point where your passive income from these investments exceeds your required monthly expenditures you’ve pretty much won the game… It’s doable!

girl on a beach
It would not be Spring Break time without some Facebook FOMO!

Coming up soon – blogs about Bitcoin, minimalism, and a list of things I do not understand.

Be well,

Todd

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