FOMO

After my previous posts (thinking errors; psychological aspects in the stock market), I would now like to deal with FOMO and FUD. I wanted to summarize both in one post, but that would have blown up the reading time. Attention span etc... Therefore I start today with my thoughts on FOMO.

Reading time: about 7 minutes

Fear of Missing Out (FOMO) is a phenomenon that is closely related to the human psyche and behavior in social and economic situations. It describes the feeling, or fear, that people (might) experience when they feel the need to have something immediately or want to participate in a certain experience out of fear of otherwise missing out on a potential opportunity.

Humans are fundamentally highly social and have an innate need for recognition and validation from others. This is also reflected in the strong desire for social acceptance and affiliation with something or someone, e.g. all those who now also have the latest hype endless money incoming stock in their portfolio. When they see friends, colleagues, or acquaintances participating in or owning something, it can trigger the feeling that they need to participate in or own it as well in order to not feel left out. That to the basic.

FOMO on the stock market

FOMO occurs in various aspects of life, but most especially in investing. One possible catalyst that has emerged in recent years is social media, which is due to the advance of digitalization. You constantly come across the "successes" and beautiful portfolios of others in relevant places on the www (the even greener grass at the neighbor's - or: why did he buy the stock at €10 and I only at €479?). As a result, one is often exposed to stimuli that can trigger or intensify FOMO. Negative side: one may develop envy, dissatisfaction with one's own investment strategy and/or the feeling of being "worse" than this completely unknown person from the Internet who is successful and obscenely rich and aspires to become the next Buffett. Who besides at least a small second even a smaller third depot leads and daily new milestones in hundreds of thousands steps reaches. Of course, everything is in the green zone!

Maybe you would like to be like that yourself: a daredevil stock market Indiana Jones, who times the market and gets away with it - all the time. There one is directly ashamed with his own +7% MSCI World Depot.

FOMO can lead to impulsive purchases and actions for the reasons mentioned above. Guided by the fear of missing potential profit opportunities, one goes all-in again at the ATH, preferably on credit. One buys a share (or a similar product) without research or analysis, because one sees that others also profit exactly from it. This behavior can lead to irrational and hasty decisions, which can have a negative impact on the investment result.

My personal FOMO

I have fallen into the FOMO trap myself a time or two. Wirecard was and Varta is my current concrete shoe. And contrary to one of my previous posts about the sunk cost fallacy, I have not yet managed to part with Varta. After all, they pay dividends!

If you're in the FOMO trap and sitting on bad stocks, you may well find yourself invited to the party by FOMO's unsympathetic cousin: loss aversion. Conversely, if investors are afraid of missing out on a potentially profitable investment, they might just as well be inclined to want to avoid losses and hold on to an unsuccessful investment, even if reason suggests a different decision.

To overcome FOMO and loss aversion and make better investment decisions, it is important to develop a disciplined approach to investing, i.e. a good overall strategy - these topics have been discussed enough here, so I won't go into them further.

Overall, FOMO shows how strongly the human psyche is influenced by social and emotional factors. Awareness of these psychological behaviors can help to make better decisions, not only in terms of investments, but also in daily life. For example, who can remember the teleshops of the 90s and 2000s? In colorful, flashing pop-ups it was dramatically shown that right now there are only 37 great Miracle Blade knife sets left for all future. In addition the moderator and the salesman, who did not get over their enthusiasm for the offered product and even sawed glass bottles with kitchen knives. If you don't call NOW, you'll miss your chance and regret it for the rest of your life. Oh, only 36 sets left!

Playstation 5 FOMO?

In my opinion, also an example of this was the sales launch of the current generation Playstation console. Briefly: At the beginning of the sales launch, there were far too few consoles for the market. Only with luck could you buy a console regularly. In addition, there were so-called scalpers, which are people who came into possession of several consoles and then resold them at a high markup. Sony, as the manufacturer of the Playstation, got quite a lot of negative attention back then - but as we know, negative attention is better than none at all. Besides, it's super publicity, which is why it was always claimed that Sony was deliberately causing the low availability of consoles, thus creating an artificial shortage. What happens to people who want a Playstation 5 but don't get one? That's right, FOMO. Everyone else is already playing the latest game on the hottest console ever, and I'm sitting here with a crappy PS 4 that was good enough until yesterday, but just isn't cutting it anymore today.

Short conclusion:

FOMO can create a powerful feeling and lead us to impulsive actions. If one is caught by it, one must try to be strong and patient and act consciously and not lose sight of one's long-term goals. However, one may of course keep a small percentage of one's assets ready for gambling.

It is important to realize that no one is completely immune to FOMO, but with conscious action and self-reflection (on investments already made), one can try to keep FOMO at bay.

Thank you for your attention. I'm happy to answer questions and provide constructive criticism!