FOMO

Fear and greed are the two most powerful forces in investing. And greed is back, in a big way. It’s everywhere.

FOMO (the fear of missing out) is not new. It's hardwired into all of us. That gravitational pull of what everyone else is doing. The media amplifies it, social media accelerates it, and before long it feels like everyone is getting rich except us.

Since Covid, we’ve seen FOMO in real estate, airbnbs, meme stocks, SPACs, cannabis stocks, NFTs, crypto, EVs, clean energy, ESG funds, gold, silver, FAANG, MAG7, private equity, venture capital. We've even seen it in bourbon, collectibles, and now the epicenter is clearly AI. It starts as a whisper, builds to a roar, gets declared world-changing and must-have-at-any-cost, draws in massive capital, and eventually it goes too far.

AI feels different. Then again, they all do at the time. That's the nature of a mania. The emotions are always real and that’s what makes it so dangerous.

In 1999, believing the internet would be transformative was not the same thing as knowing which companies would become long-term winners. We don't need to predict the early AI winners. We already own the vast majority of companies benefiting from AI, and we will own the next generation of leaders as they earn their place as well.

Most people think the hardest moments in investing are the big panic-driven declines. But times like these can be even more dangerous.

When everything around you seems to be going up and you feel like you’re missing out, the emotional pull to act can be every bit as powerful as the urge to flee during a panic.

We’ve endured sharp selloffs led by fear-driven headlines. Each one has been met with a vicious rally back to new all-time highs. FOMO is a diversion that takes our eye off the ball and steals the focus from our long-term plan to a short-term trade or event. Double-digit returns now pale against the idea of “hitting it big.”

Investing is simple but never easy.

Investing and speculation are not the same thing. Owning a diversified portfolio of great businesses is investing. Chasing the hot new trend, picking individual stocks, and jumping into IPOs is speculation. One builds wealth. The other too often destroys it.

But FOMO is only half the story. The other half is brutal. It’s where the bill comes due for chasing short term returns at the expense of long term investing. The finding out part, is not a matter of if, but when.

We’re seeing it emerge in some of the areas that attracted the most enthusiasm and capital over the last several years.

There’s no need to chase, and no reason to abandon a diversified portfolio for bets on the “next big thing.”

Successful investing isn’t supposed to be exciting.

If investing is fun, you're probably doing it wrong. The skills needed for investing success are not intensity, information, speed or agility. Rather it's discipline, patience and an unwavering faith in the future. Buffett has been asked why more people don’t replicate his success. His answer is simple: everyone wants to get rich quickly, and he does it slowly. Temperament is what separates successful investors from the rest. It’s easy to lose sight of that and it’s never been more important to understand it than during the mania.

Staying disciplined and keeping perspective when greed is surging is every bit as important as staying the course when fear takes over.

When these themes turn, and they will, the bigger you bet the more likely you are to capitulate. The magic of compounding has nothing to do with the best return in a single year. It’s about the highest rate of return you can sustain over a long period of time.

What anyone else is doing is irrelevant.

When setbacks inevitably arrive, you will know with full conviction: we prepared for this.

To be clear, we are not making a market call or suggesting to try and time the market. Missing even a handful of the best days can devastate long-term returns. Charlie Munger said it best:

Never interrupt compounding unnecessarily.

We're simply advocating against abandoning a well designed plan and portfolio to chase the next hot thing.

What to Do Right Now

Ignore the IPOs. An IPO is insiders selling their shares to the public, not buying alongside you. Some of these IPOs are coming to market at valuations in the trillions. That is not where the value creation happens. First-day pops may make headlines, but they are not a plan. In fact, they actively work against it by taking your attention away from why your investing to begin with. The odds are stacked against you from day one as underwriters, institutional investors, and insiders all get preferential access and pricing before you ever see a share. If you are lucky enough to make money, you now face a new set of decisions and risk including when to sell, what is the tax impact, and how it fits into your plan. Most IPOs underperform the broader market within a few years. The headlines don't tell that part of the story. In my opinion, IPOs and individual stocks are a distraction from the only thing that matters: your goals, your plan...and your life.

Circle the wagons. The sun is shining right now. Rather than get burned chasing the next hot thing, this is the perfect time to protect yourself and your portfolio. Consider refilling emergency funds, ensure set-asides for upcoming spending needs, reduce debt, and make sure the right protections are in place before the inevitable rough patches arrive.

We exist to help you avoid getting caught up in the emotions of investing, to help you avoid mistakes and, ultimately, focus on what matters.

The best thing you can do right now is stay disciplined, shut out the noise, and trust the process.

Your life is our passion.

‍