Psychology of Money: FOMO
Fear of missing out, or, “FOMO,” is one of the biggest traps in the investing world. It’s always been a problem, whether we’re talking about the proverbial, “shoeshine guy,” giving out stock tips right before the crash of 1929, or the country club one-upmanship on the golf course, hearing about other people making what appears to be easy money provokes envy, which reduces our ability to think clearly & make rational decisions.
This week we’ve been introduced to a subreddit called, “WallStreetBets,” and how its activity has affected the stock prices of GameStop (GME) & AMC Entertainment Holdings (AMC). Now, if you still don’t know what Reddit is, or what subreddits are, count yourself lucky. You are not missing out. My social media has been blowing up with discussions, and I use that term in its loosest possible sense, on how to take advantage of it, how to figure out options trading, how not to miss out the, “next time,” or, probably worst of all, whether there’s still time to, “get in.”
Is there money being made? Sure. Will there likely be money lost? Also, yes. Is any of it worth spending time, which is your most valuable asset, on? In my opinion, no. Life is busy, and we have way, way more important things to do than worry about whether some hedge fund is being squeezed by a vigilante subreddit. One possible worthwhile takeaway could be that Robinhood may not be the best brokerage to rely on to do your trading. They’ve experienced any number of issues over the last year, and the way they restricted trading to only closing out (selling) positions in GameStop & AMC does not exactly inspire confidence. (Full disclosure, I use TD Ameritrade as my custodian, and they also added trading restrictions for GME & AMC, but at the time of this writing, still allowed purchases as well as sales to occur.)
But forget all that. Really. That’s what I want you to do - forget about it.
None of us have crystal balls - or working ones at least, yet I see so many people pretend that they do when it comes to their investments. Worse yet, they often pay people to pretend that their crystal balls are more accurate than the rest.
What do I know, and what do I get up on my soapbox about?
It’s good to make plans. Life plans. Financial plans. Heck, you’d be surprised how much less stress you’ll experience on vacations if you do a little advance planning. (Pro tip: even spontaneous trips are more enjoyable with some planning.)
It’s good to save money. Save money, invest the money you save. Don’t, “spend,” a percentage of your savings every year on unnecessary fees to fund managers, financial advisors, etc. (Another pro tip: percentage based fees may seem reasonable when you’re just starting out, but they never stop growing, and as you save more, they just get bigger.)
It’s best to concentrate on controlling the controllable. Focusing on your own career, your education, your family, will often gain you a more immediate and tangible, “ROI,” than reaching for yield on some risky investment.
One of the things I’ve told folks for decades now - more often lately, as the concept of, “side gigging", has become more popular - is that the most difficult job to excel at is a part time job. If you treat it as part time, you’ll never get good at it, and if you devote the time you need to it to get good, you’ll be horribly underpaid. The GameStop/AMC subreddit squeeze, among other things, just distracts us from our lives, and living our lives is not a part time job.
Try not to spin from one distraction to another, only to find out that the only thing you’ve really missed out on is your own life.
