Fear Of Missing Out, or FOMO, is a term that has been used for years to characterise the anxiety or apprehension that people can experience when they fear missing out on something. The term “fear of missing out” (FOMO) has been used to describe everything from social events to financial investments, and it is particularly relevant to trading and investing in the present day.
In trading and investing, FOMO refers to the dread of missing out on a potentially lucrative transaction or investment opportunity. It is the apprehension that an investor will lose out on a substantial profit if they do not purchase a stock or other asset that is rapidly appreciating in value. This dread can cause investors to make hasty investment decisions that are not based on solid fundamentals. It can also lead investors to forsake their long-term investment strategies and take on more risk than they can afford. For instance, a saver for retirement may become so fixated on a particular stock that they invest more than they can afford to lose. If the stock price falls, the investor may be compelled to liquidate other investments to cover the losses, jeopardising their long-term retirement strategy.
Having a well-defined investment plan that takes into account your financial objectives, risk tolerance, and time horizon is one way to combat FOMO in trading and investing. This plan should be based on a solid fundamental analysis of the assets in which you are investing, not on short-term market trends or hype. It is essential to adhere to this plan and refrain from making rash decisions based on fear or anxiety.
Diversifying your portfolio across a variety of assets and investment vehicles is an additional strategy for combating the fear of missing out. By diversifying your investments across multiple equities, bonds, mutual funds, and other assets, you can reduce the likelihood that a single investment, made in response to FOMO, will result in substantial losses. Diversification can also reduce the impact of short-term market volatility on your portfolio by smoothing out market fluctuations.
FOMO is a genuine phenomenon in trading and investing that can result in poor investment decisions and monetary losses. The most effective method for combating FOMO is to have a well-defined investment plan based on solid fundamentals, diversify your portfolio across multiple assets, and adhere to a disciplined investment strategy. By adhering to these guidelines, investors can avoid the pitfalls of FOMO and make investment decisions that are in accordance with their long-term financial objectives.
References:
- Barber, B. M., & Odean, T. (2000). Trading is hazardous to your wealth: The common stock investment performance of individual investors. The Journal of Finance, 55(2), 773-806.
- Berrada, D., El-Khamlichi, A., & El Amine, M. M. (2020). Fear of Missing Out in Financial Markets: A Literature Review. Journal of Risk and Financial Management, 13(8), 162.
- Kacen, J. J., & Lee, J. A. (2002). The influence of culture on consumer impulsive buying behavior. Journal of consumer psychology, 12(2), 163-176.
- Nisbett, R. E., & Ross, L. (1980). Human inference: Strategies and shortcomings of social judgment. Prentice-Hall.
- Statman, M. (2010). Fear and greed in financial markets: A clinical study of day-traders. Journal of Applied Finance, 20(2), 21-33.
- Yoo, S., & Kim, Y. (2018). Fear of missing out, overconfidence, and trading activity. Journal of Behavioral and Experimental Finance, 19, 1-14.
