Yo, FOMO

I've been in the stock market long enough to believe that when retail investors watch CNBC and talk about stocks, it's time to sell. I swore by it then. But I've recently unsubscribed to that which is surprising because once a trader, always a trader they say. Which means we don't like change. Even Lloyd Blankfein allegedly still actively trades in his retirement.

FOMO is fear of missing out. A term used to describe market movements of sudden bursts in asset prices. Short-term traders buy the stocks driving prices up. Other droves see the movement and start buying for fear of missing out. This behavior results in an upward movement in a matter of nanoseconds. This pattern repeats itself until it stops. Buy high and seller higher.

So why do people still follow the herd? First, it's easier to follow than to lead. Formulating and defending your own conviction that goes against populism can be difficult to maintain. No one wants to be wrong so it is easy to doubt your ideas when you are alone in your corner. Second, money is money. Everyone wants it. The sooner the better. Third, people are attracted to anything that glitters. FOMO usually chases the 'flavor of the month.'

It took me many years, many poor decisions, and many losses to transition from being a trader to an investor. But being reminded of my fiduciary responsibility to clients allowed me to be in the market by accepting the shifting paradigm to take advantage of volatility when reallocating positions. No more FOMO for me. It takes discipline to protect against losses and resolve to take profits.

Crypto is the current glittering jewel of water coolers (or Zoom calls) today. It is sexy, new, and exciting. These assets have no intrinsic earnings but have had an astronomical run in the past 18 months with no signs of letting up. With no fundamental value, the way to justify owning the space is to look at the potential growth, i.e. mass adoption, or momentum analysis as speculative bets drive price direction.

So good luck to everyone who plays in these names. Don't forget that for every buy order there is an opposing sell order. For every winner, there is a loser. Not everyone wins with FOMO.