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Emerald Crypto | March 21, 2021
Fear of Missing Out, often shorted by the acronym FOMO, is the the feeling or perception that others are having more fun, living better lives, or experiencing better thi...ngs than oneself. This anxiety can stem from coveting material things like a house or a car, craving the status that comes along with earning a degree or job title, or from the social capital to be gained by attending a trendy party or event.
This psychological phenomenon stems from, at least in part, a principle researchers call loss aversion. Loss aversion is the idea that people are more impacted by the possibility of missing out on something than they are by the possibility of gaining it. In other words folks are more anxious about not having a nice house than they are fulfilled by actually having one. (What if somebody's house is nicer??!)
Investment FOMO
Investment FOMO is no different. Fear of Missing Out kicks in especially when the market is doing very well and others - even the unwashed dabblers - are making money hand over fist. More experienced investors see what is going on around them and are tempted react in an emotional and undisciplined way, especially as the market itself behaves irrationally.
Charts and indicators go out the window as one chases prices up. Managing risk becomes secondary as another sharp rally comes along. Traders give in to greed and seek to do that which is impossible - to capitalize on every opportunity that comes along.
This is all magnified by social media. People compare their 'regular' lives to the highlight reel of others' lives. Investors may brag about their successes publicly, but they are less likely to reveal past blunders and losses.
Plus hindsight is always 20/20. It's easy to second-guess oneself after the fact when all of the information is available. The market is unpredictable and it's simply not possible to win with maximum efficiency every time.
Don't Give In to FOMO
At some point the temptation to succumb to FOMO will come along. One of the best ways to avoid giving in is to have a plan in place before it does. Have tangible goals and develop a concrete strategies to get there. Be specific - include allocation data and have a timeline.
Remember, this is a marathon not a sprint. Have a long-term focus and perspective and be patient. Warren Buffet was on to something when he said that the market is a mechanism for transferring wealth from the impatient to the patient.
When FOMO creeps in take as much emotion out of the equation as possible by reverting back to your goals and strategy. Look at your charts and indicators more, not less. Warrior Trading suggests verbalizing your reasoning for a potential trade or purchase out loud. The idea is that by saying it out loud it will become more clear if the decision is based on solid evidence or if the 'reasoning' is an impulsive rationalization.
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