(MarketPsych Insights is a subscription service for modern financial advisors that identifies clients' unique Investor Personality Profiles and suggests practical, personalized investing solutions).
"The market is a relentless five year old. And investors are only human."
Most of what gets called greed is really a form of fear, one driven largely by social pressure. It's not that investors are a bunch of Gordon Gekkos, they just don't want to miss out. Which leads us to the hot new acronym that feels slightly inappropriate to say (c'mon, I can't be the only one who thinks this!)...
FOMO! That's right. FOMO! Fear of Missing Out.
As far as fears go, it is a perfectly rational one. The stock markets are (IMHO) the best and most accessible long term wealth generator for the American public - but only if you're participating in the bull markets.
If you're missing the good years, you're missing the point. The math is simply cruel.
FOMO! makes sense. We should all have a little FOMO!
But why all the FOMOing now? I know an FA who advised his clients that stocks were overpriced 3 years ago. (The market has gone up roughly 65% since then). Heck, the bull market goes all the way back to 2009.
You could've yelled FOMO! in a crowded theatre for YEARS now. So why this (dreadful) acronym all of a sudden? What gives?
The answer is that this geyser of FOMO is being fueled by an underground lake of ROMO.
For those who don't know what ROMO means (which is all of you, because I made it up just now) it is the Regret of Missing Out.
Investing regret is a fascinating emotion. (I know, I have given remarkably entertaining and informative talks on the subject for 15 years). That's what we're seeing, a massive amount of pent up regret from all the people who have watching the ride rather than enjoying it. It's all part of the game we've been playing.
Here is an unpleasant truth about relentlessly rising markets; they do not reduce the sense of regret, they compound it. Watching the market climb doesn't resign you to your fate. It merely adds a daily insult to your financial/emotional injury, a fresh reminder that, "Actually it WASN'T "too late" after all. You're just a wimp."
The rising market has the same effect as a five year old asking you: "Daddy, can I have your iPhone, please?... Daddy, can I have your iPhone, please?... Daddy, can I have your iPhone, please?... Daddy, can I have your--"
Until you say:
"OKAY! YOU CAN HAVE IT FOR, LIKE, FIVE MINUTES IF YOU PROMISE TO BE QUIET!!!"
(Don't judge me. He did say please.)
That's what this market is, a relentless five year old. And investors are only human. This ROMO fueled FOMO is a form or mass capitulation. There is only so much one can take. But acts of investing capitulation come with a haunting suspicion, "I just know the moment I give in and decide to invest this whole thing is gonna..." These are stormy emotional seas for investors to navigate. Which is why, financial professional who is reading this, they need your help.
Certain types of investor personalities are more susceptible to ROMO and FOMO! The ability to recognize these traits and remedy them (proactively, even) is an amazing advantage, one that leads to client satisfaction, client retention, and fewer headaches.
We don't have an actual "fomo-meter" at MPI. (Note to self: Create a fomo-meter.)
But we do have insights into the personality traits for those most susceptible to regret, fear and self-loathing, as well as practical ways for you to address them. We invite you to join up, ask a question or request a free demo.
Until next time,
"And hey... let's be careful out there."
Frank Murtha, Ph.D.