As market volatility increases, the desire to capitalize on every opportunity can cloud judgment. FOMO (Fear Of Missing Out), often disguised as ambition, can lead to reckless investment decisions that threaten or even harm long-term financial goals. This blog explores the implications of FOMO and how it causes investors to chase returns.

The Cost of Chasing the Market

Investors driven by FOMO tend to chase trends, jumping into the latest hot stock or sector without adequate research. This exposes portfolios to higher volatility and can result in investors missing the best days in the market. The stock market, as history shows, rewards patience and disciplined investing.

Consider the example of a hypothetical investor who decided to invest $10,000 on January 1, 1980, and stayed invested until July 2018. Had this investor remained invested during the entire period, their $10,000 would have grown to $708,143. However, if they missed just the five best days of the market during that term, their investment would have grown to only $458,476.

Emotional Investing and Its Pitfalls

FOMO is rooted in emotion, and emotional investing can be detrimental. When markets are down, fear can lead to panic selling. Conversely, when markets are up, greed can lead to overexposure to high-risk assets. Both scenarios disrupt the power of compounding, which is essential for long-term wealth accumulation.

If you see someone getting rich it is easy to think “If they can do it, I can too”. That feels like a good emotion and the right idea, but as Charlie Munger once said “Someone will always be getting richer faster than you. This is not a tragedy… The idea of caring that someone is making money faster than you is one of the deadly sins”.

FOMO is not a Long-Term Winner

FOMO may masquerade as ambition (i.e., people believe they are being proactive, smart investors). This is an illusion, and often leads to reckless decisions that undermine long-term financial goals. By focusing on a disciplined investment strategy, keeping emotions in check, and maintaining a long-term perspective, investors can avoid the traps of FOMO and build sustainable generational wealth. Great businesses remain great businesses before, during, and after economic downturns.