emotional-mistakes

How to Handle FOMO (Fear of Missing Out) in Investing

Everyone around you is making money on a hot stock or trend — feeling pressure to jump in

What the Masters Would Say

FOMO -- the Fear of Missing Out -- is arguably the most destructive emotion in investing. It has driven more people to buy at market tops, chase speculative bubbles, and abandon sound investment strategies than any other psychological force. Understanding and managing FOMO is essential for long-term investment success.

Howard Marks considers FOMO the single most dangerous force in financial markets. In his famous memos, he explains how FOMO creates a self-reinforcing cycle: rising prices attract attention, attention creates envy, envy drives buying, and buying pushes prices higher. This cycle continues until the last buyer has been pulled in and there is no one left to push prices higher. Then the cycle reverses violently.

Warren Buffett has resisted FOMO throughout his entire career, and it has been the primary source of his outperformance. During the dot-com bubble of the late 1990s, Buffett was publicly mocked for refusing to invest in internet stocks. Berkshire Hathaway underperformed the NASDAQ by enormous margins. Investors and journalists questioned whether Buffett had lost his touch. Then the bubble burst, and Buffett's patient discipline proved devastatingly correct. The NASDAQ lost 78% of its value while Berkshire emerged stronger than ever.

Charlie Munger explains the evolutionary psychology behind FOMO: humans are social creatures who evolved to follow the herd. When our ancestors saw the tribe running in one direction, following was a survival strategy. In modern financial markets, this instinct is lethal. When everyone is running toward a hot investment, they are usually running toward a cliff.

The social media age has amplified FOMO to unprecedented levels. In previous eras, you might hear about your neighbor's stock market gains at a dinner party. Today, you are bombarded 24/7 with stories of people making fortunes from meme stocks, cryptocurrency, AI plays, and whatever the latest trend might be. The gains are always exaggerated (people share wins, not losses), and the timing is always presented as obvious in hindsight.

Your Action Plan

1. Recognize FOMO when it appears. The physical sensation is distinct: a tightening in your chest, an urgency to act immediately, a feeling that opportunity is slipping away forever. When you feel this, pause. FOMO is your brain's survival instinct misfiring in a financial context.
2. Apply the "newspaper test." Imagine that the investment you feel FOMO about crashes 50% tomorrow, and your purchase is on the front page of the newspaper. Would you feel foolish? If so, the investment is probably driven by FOMO rather than analysis.
3. Remember that there is always another opportunity. Missing one trade or one trend is irrelevant over a 30-40 year investing career. The fear that "this is the last chance" is almost always wrong. Markets continuously create new opportunities.
4. Track your FOMO decisions in a journal. Write down every time you feel FOMO, what you wanted to buy, and what happened over the next 6-12 months. This record will reveal that FOMO-driven impulses rarely lead to good outcomes.
5. Use social comparison as a contrarian indicator. When taxi drivers, hairdressers, and social media influencers are all talking about the same investment, it is almost certainly too late. Widespread enthusiasm is a sell signal, not a buy signal.

The Bottom Line

The ultimate FOMO antidote is having a written investment plan that you follow regardless of market conditions or social pressure.

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