Fear Of Missing Out (FOMO)

The stock market is a diabolical doctor that injects us with despair, hubris, or FOMO - sometimes all three at the same time.

When we are injected with despair, it feels like you can do no right. Every decision you make is the wrong one. The stocks you buy go down. The stocks you sell go up. The stocks you hold go nowhere.

When we are injected with hubris, it feels like you can do no wrong. The Lord blesses you for 6-12 months with a crystal ball as a brain. You can see the future. Every decision you make is the right one.

At all times we are injected with FOMO. We watch stocks we don't own outperform what we own. It makes us do stupid things.

No one is spared from the diabolical doctor, not even the GOATs (Greatest of all Time).

In February 1999, Stanley Druckenmiller went short technology stocks. The bubble was obvious to him. One month later his loss was $600 million. He threw up his hands in anguish, closed his short position and ate the loss. 

Just one year later, technology stocks were still ripping. He couldn’t take it anymore and went long. 

“I bought the top of the tech market in March of 2000 … in an emotional fit I had because I couldn’t stand the fact that it was going up so much … I put billions of dollars in within hours of the top. And, boy, did I get killed the next couple months.”

It is maddening watching other people make money in stocks you passed on. The worst is when those "other people" are your friends.

You research a new idea and mention it to a couple of your investment friends. You did your diligence and determined the management and/or business doesn't meet your standards. Your buddies decide to buy it. You keep the stock on your watchlist.

When the stock moves up 25% in a week it doesn’t bother you. "Lucky timing for my friends. Good for them!"

But when it’s up 50% you start to feel the tug of resentment. 

Then it’s up 100% in a month. “Well, that’s annoying.” 

Then every Substack/blogger/X Guru add the stock as a "Top Pick".

Now the stock is up 200% in two months, and then 300% in three months.

You thrust your clenched fists towards the heavens in despair. Why has God brought this anguish upon you? You’ve been a good and faithful servant of value investing. 

You watch your friends hand slapping and grab assing about their win all over social media and group texts, “like a bunch of amateurs”.

When YOU make money on stocks it's called skill.

When OTHER PEOPLE make money on stocks you don't own it's called luck.

Thankfully, you have enough discipline not to buy this stock up 300% in 3-months.

But you wonder if you should loosen your standards to let the next one into your portfolio. 

You do. 

You buy the next one that doesn’t exactly fit your standards, but it fits the theme or fad that is working.

Then just like Druckenmiller you top tick the market. Like a light switch the market, theme, or fad goes out of favor. The stock you just bought drops 30% in a week. You realize you are just like everyone else.

The diabolical doctor's job is to turn you into an average investor.

Over an investment lifetime you will pass on more winning stocks than you will let into your portfolio. Most of them are stocks that didn't fit your standards or principles.

You can't beat yourself up watching stocks go up that you wouldn't have been able to hold onto/build conviction in the first place.

Not every winner is meant for you. You can learn from them, but don't get distracted by them.

Successful stock picking means finding the select few winners that are meant for you so you can hold onto them.

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