FOMO is a real thing.
I came across the term FOMO first time in the context of the stock market although it is being used in the setting of other situations, especially in a social context.
FOMO stands for Fear Of Missing Out and like it says, it makes you feel you are missing something important if you are e.g., not at that party, not part of that club, not part of that conversation - or in the stock market context: if you are not invested in that specific stock or area.
It is kind of a sneaky feeling and can become super strong within a couple of minutes. But knowing about FOMO is already the first step to not fall into one of its traps like buying too quickly without doing the needed research.
Global pandemic example
Let´s assume, we have a global pandemic and stay-at-home stocks are skyrocketing because close to everyone is in a lockdown situation, working from home and unable to participate in any public gatherings.
Now there is a set of stocks that are doing very well while others are doing badly. You know them - you´re watching them throughout the whole pandemic.
Chances are, you were looking at a specific company for a while already and its stock is going up and up and up and you kind of missed the best entry point. Argh - what a damn feeling. And you tried - really - you tried to enter the stock but missed it somehow every time. The limit orders you did expired as they were too restrained and the stock simply went further up.
You are thinking back and forth about the best strategy, you are googling to find deal-breaking information that helps you with the new best entry-point. But all you see is just proof that the stock will go further up.
You might come to the conclusion that if you are not investing now, it will only be more expensive for you and you are missing a ton of return.
There is this image in your head that the stock runs away without you and everyone is celebrating a giant party of revenue. Everyone but you. You were too anxious to buy. You missed the sweet spot.
What you are experiencing is the fear of missing out. Welcome to FOMO.
And now?
Yes, good question: What are you doing now?
The best is to realize and admit if FOMO hits you. And now - take a breath and make a reality check.
If you still want to buy - come on! Go invest in the stock. And: why not - you did your research, you compared the stock with benchmarks, you did your forecasts and you know your risk tolerance. Right? And if all your research tells you: Invest - why shouldn´t you?
But if only fear of missing out and an irrational emotion hit you - maybe start doing some research before buying anything.
No one can look into the future and therefore no one can tell you whether you are right or wrong. This is kind of the magic of the stock market - the good, the bad, and the ugly. No one knows what is happening and when.
Time will tell whether you made the right choice. Will you get a net positive, lose some money, or did you buy just before the stock goes down again and you definitely missed the sweet spot for this period?
My FOMO experience
I experienced FOMO a couple of times.
Sometimes I bought and sometimes I resisted. And one thing for sure: Resisting and not buying is not necessarily the better choice. If you are not invested, you are not getting a potential return. At least not from that stock you were focussing on. However, if you bought and everything works out - a satisfying return on investment might be waiting for you.
One of my FOMO stocks is Xiaomi; A tech stock rather than a stay-at-home.
And no, I am not one of the lucky ones that could benefit from Xiaomi's Rallye of 2020 - yet!
But let´s go back a little bit: The Xiaomi stock was skyrocketing - unbeatable. There was a real Xiaomi hype - and I was part of it. I was sure - this is it. The BIG deal. One day was better than the day before. Up - up - up. There was just one direction Xiaomi knew. I made limit-orders. They were too low - not executed. I made a new one - expired again. Dear - Xioami was on fire! I watched the Rallye from the sideline and couldn´t find a good moment to jump on the stock. It went off without me 😨
At one point watching the stock, I decided that I need to go in before it hit the three Euro mark. A mark that was approx. 30% over my first limit order. And Xiaomi came closer to this mark swiftly.
I had no choice - I needed to go in before I would miss the limit I set myself. Next stop: market order: I bought it for 2,91 euros. Puhhh - Goal reached. And off we go 🤩
Well - the thing is: I bought literally at the highest price ever before the stock went down into a consolidation. I mean - look at that: First the Rallye and my entry point.
Only FOMO can make you buy it there.
But what happened?! Nothing - or just regular things. A stock is doing well and at some point, investors start realizing their profits. Normal stuff. If I would have waited for another 2 or 3 days, I would have gotten my chance to get into the stock at a lower rate. But FOMO hit me hard and let me buy the stock in a flagpole. My research and forecast were not wrong. I simply bought it at bad timing.
As mentioned, I bought it at the highest price ever. But ok. I am waiting for Xiaomi to go back up. It was not a short-term investment and therefore I do not care too much right now. I care about where it is heading in the mid- and long-term.
That means I am now holding the stock and waiting for the turn into profit range. At the beginning of September I thought to reach it earlier, but no. That´s life.
Back then, by watching the stock, checking the news, and knowing their products, one could come to the conclusion that Xiaomi was about to become the next Apple - soonest. Everyone loves Xiaomi products, the marketing began to target Europe and was more than successful. The prices of their products are moderate while opening up high-tech, advanced smart-home experience, and top-class products to way more people than Apple ever could.
Last but not least: The stock price itself was just slightly above a penny-stock and triggering. If you are buying 500 Xiaomi or 1000 or whatever and holding for 20 years - Head Movie.
By the way, I am pretty sure the same happened to a lot of people this summer. The exact same story - but hey - this is FOMO. As I said, it is a real thing.
How to overcome FOMO?
FOMO is not all bad and can lead to some great investments - short term profits or long-term and also some great base investments to keep your portfolio stabilized in a volatile market. However - as a disclaimer - a wrong investment can always lead to severe money-loss.
But - no question - the feeling of fear is for sure not that great.
Reframing, experience, and a realistic point of view can help.
Keep in mind: The fear that a stock will never ever be that "cheap" as it is now will most likely never come true. All the stocks I´ve seen so far are coming back down e.g. when people start to realize some profits and with this opening up the stock for new investors who are happily cruising the next wave. Setting a limit order will most likely allow you to enter your stock of choice for your price of choice. Maybe not at your time of choice, but perhaps very close to it.
As always, there are maybe some stocks out there proving me wrong, but even those are coming back little every now and then opening up chances for new investors.
And believe me: It is more fun watching a stock going down you are not invested in yet to find a good entry-point and then - when in - watching the stock go up again and bringing you into profit range. If you would have bought at the higher price before, your stock would drop, you lose and you will only go up to break even instead of immediate profit. Less fun - as I said 😄
Another important thing to keep in mind is that it will not help being depressed, that you did not manage to open up your depot in 1984 to buy Apple, or that you missed investing in Amazon when they were at $18 in 1997.
You can´t change the past and you need to have a realistic view of the stock market. What are your chances today? You can invest in Apple now. You can buy an Amazon stock today. The share prices are higher than in the nineties, but still - you have good chances to make your share of profit with those stocks now. Maybe in 2040, there are people thinking if I only bought Apple when they were at 100 euros back in 2020 or if I´d only bought Xiaomi at 2,91 I´d be a millionaire right now.
One more thing: Do not forget there is always another company out there you can invest in. A company you might not even be aware of right now. Also in a pandemic, there are other important and profitable industries than stay-at-home options.
Sometimes all you need is to let go of one stock and focus on another one. Accept, you can´t invest in all companies - also not all great ones. Maybe the next stock will be even more profitable than the one you were fearing about to miss out on. That´ll be a win for you!