Dangers of FOMO

Dangers of FOMO (Fear of Missing Out). Don’t let it drive you to make investment decisions you wouldn’t normally make.

When you see headlines like, “Nvidia becomes world’s most valuable company…”¹

Or read that a few stocks are responsible for most of the market’s gains…

Or see some newsletter bragging about a X,XXX% return on a single stock pick…

It’s natural to wish you could go back in time, invest in a “sure thing,” and ride the escalator all the way to the bank.

But that just isn’t how investing works.

(By the way, Nvidia experienced the fastest loss in history pretty quickly after reaching the top spot.²)

There are two hard truths I want you to remember when you get that FOMO (fear of missing out) feeling:

1. There’s no such thing as a sure thing. No one predicted the AI boom that rocketed tech stocks to the stars in 2024.
2. High-flying stocks are very vulnerable to sudden crashes that also hit without warning.

I assume you already know all that, but it’s worth a reminder.

It’s easy to let headlines overwhelm logic.

Everyone loves a winner, but no one is good at consistently picking them (or predicting the moment when winners turn into losers).

Sure, some investors like to gamble big to win big.

More often than not, gamblers lose big.

(The headlines skip that part, and the losers usually slink off to a corner instead of showing up on the news.)

Economists call that “survivorship bias.”

It’s when we forget that for every winner, there are many losers.

When we draw conclusions from the select few who win big while ignoring the failures, we’re likely to make mistakes.

And picking a winner while skipping the losers is all luck.

How do we give ourselves the best chance to invest in market winners?

Well, it’s a little boring and doesn’t make for great headlines.

We pick a strategy and stick to it.

We diversify.

We check in and adjust based on what we see.

Rinse and repeat.

There’s no magic to long-term returns.

Just patience and consistency.

*By the way, if you’re worried that you don’t own Nvidia or the high-flying “Magnificent Seven” big-tech stocks, don’t be. If you have any sort of large-cap stock fund in your portfolio, you own these companies. Just in a more diversified way.

Sources:

1. https://www.cnbc.com/2024/06/24/nvidia-slides-13percent-in-three-days-after-becoming-most-valuable-company.html

2. https://finance.yahoo.com/news/nvidia-sees-over-500-billion-121230302.html

Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.

We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.

More relevant articles by Financial Synergies:

• The Magnificent 7 Market
• Most Stocks Are Bad Investments
• Can The Magnificent 7 Stay On Top?