Have you ever been to a cocktail party when someone brings up their latest stock winner and then several others chime in? (Do you remember cocktail parties?) Take for example the recent “Reddit trades” and TikTok day traders. Someone mentions a winning trade, people take notice and start buying in, and suddenly the new “hot stock” is in our collective conscious and everyone is clamoring to buy as much as they can, causing the price to soar. This phenomenon is not exclusive to individual stocks, but these activities can move the whole market up or down as well.
It’s human nature to want to follow the herd. So as others buy high, we join them and buy even higher. Conversely, if others sell low, we sell even lower. We don’t want to miss out, and we don’t want to be left holding the bag. But FOMO (fear of missing out) is not an investment strategy. Buying high and selling low doesn’t get you higher returns; quite the opposite, it kills returns.
So what should you do? It’s ok to feel FOMO, but don’t give in. Instead, ask WWWBD (what would Warren Buffett do)? Warren Buffett once said “be fearful when others are greedy and greedy when others are fearful.” It may feel contrary to you, but look for opportunities to buy low and sell high. Build a diversified portfolio and invest for the future, rather than the right now. Or better yet, find a trusted financial advisor to talk you off the ledge when FOMO strikes and guide you to a better investment strategy. Sometimes missing out is just the thing to do.