Any trader or investor eventually learns that Fear is a stronger emotion than Greed. That’s the basis of the observation that asset prices use the escalator up and the elevator down, by grinding higher as they appreciate, but panic on the way down.
Lately though, I’ve started to sense the rare Fear of a continued move higher. The Fear Of Missing Out (FOMO). FOMO is an emotional state that is more akin to panic than to satiated greed. And it’s not just related to performance chase by previously underweight fund managers who are staring at the S&P 500 up 15% while they’re only up 5-10%. FOMO is also felt quite keenly among the watercooler crowd. Friends and work colleagues start to brag loudly about their prescient stock picks, forwarding charts of 3 month doubles and 6 month triples (and makings sure to mention that they all bought right before the big rally started, of course).
I’ve heard emotions of anger and frustration from many in the past couple weeks that points to the strength of such Fear. But more personally, I can feel the slow buildup of that Fear in myself as I watch stocks that I wanted to buy zoom higher one by one, leaving me with no position, no profits, and a panicking desire to just jump on board before they go up another 20%.
Specific examples? I’ve been a bull on the solar stocks, but have had only a minimal position, waiting for the deeper pullback that never came. I have liked airline stocks, but have had only a minimal position, waiting for the deeper pullback that never came. I was a bull at TSLA on its breakout of $40, bought it around $41 and sold it around $45, then waited for the pullback that never came. And last week that frustration reached an apex, as the Chinese internet stocks (QIHU, SOHU, SINA, and BIDU specifically), where I have also dabbled this year, all made huge one-week moves.
Given these massive, recent gains, my emotions are staging a turbulent battle in my mind. The Fear of Missing Out is so strong, that it’s whispering to me to liquidate most of my IRA account and allocate all of my portfolio to solar stocks, Chinese internet names, TSLA, and U.S. airlines. I would have laughed in part horror, part pity, if someone had proposed such an allocation to me at any point in my career. But today, there is FOMO. It’s the whispering devil on my shoulder, letting me know that the angel on my shoulder’s advice of “discipline” and “diversification” have served me terribly, while freewheelers around me who gave in to the sweet pleasure of buying that beta have been immensely rewarded. Why be a fool on the sidelines when I can be a hero in the coliseum?
As I mentioned last week, the master-word is discipline. Don’t throw your longstanding, well-thought-out strategies simply chasing the fads of today, no matter how strong the pull of FOMO can be. It’s an emotion tied to panic, and making investment decisions on panic is a recipe for disaster.