What is Fear of Missing Out (FOMO)?

Fear of Missing Out (FOMO) is a term that was coined to represent the psychology a potential investor may go through for not executing early enough on the investment. In a nutshell, it is anticipation that an investment pay prove profitable and by not investing in it now, we may miss out on significant gains.

As an example, let’s look at bitcoin. Bitcoin has taken the last 12 months by storm. It was under $6,000 at one point last year and peaked well above $50,000 this month. Some of us may think a huge correction (or a reduction/adjustment in price to justify a more disciplined growth) is on its way. Others may feel that based on its current rate of growth, it may grow to as much as $100,000 later this year. The latter group of individuals may be more inclined to invest into bitcoin at the current price-point, due to pressure of FOMO. That is, because they don’t want to miss out on the potential $50,000 upside, they are motivated to purchase now, regardless of the current price and risks that it poses – simply due to the weight they put on its potential.

FOMO Sucks

Let’s be real, losing money is bad. But do you know what’s worse? FOMO. For me personally, it hurts more when I don’t purchase an asset I believe in and it proves to be a worthy investment. It doesn’t hurt as much if I purchase an investment I believe in and it fails. At least I tried – I put in my best faith, and I put my money where my mouth is. Psychologically, we usually don’t regret what we’ve done, but rather we regret what we didn’t do. And this is why FOMO is a thing.

The Solution to FOMO

So we’ve established what FOMO is, and we’ve also highlighted that FOMO is bad. FOMO is something we should address, not suppress. Speaking from my personal experience, the solution to this is Dollar-Cost-Averaging (DCA). I wrote a post on this earlier, and I highly recommend that you read it. By employing DCA, we can mitigate FOMO. Regardless of whether you’re projecting an asset such as a stock to go up or down in the future, if you buy into it gradually over time, you will vest into your conviction gradually. A personal example of this is my strategy with bitcoin. As bitcoin was appreciating in value in recent months, I really wanted to jump on the hype train. However, as most investors warn, never invest into something you don’t understand. And bitcoin is something I didn’t yet fully understand. So I was in a conflicting situation where the wisdom is to not invest in bitcoin, but I was going through FOMO. So what did I do? I bought a little bit of bitcoin, so that I can at least get my foot in the door, and then do more research to formulate my thesis on the longevity of this investment. Ever since then, I have been gradually buying bitcoin via the DCA strategy that I use with stocks.

Conclusion

Losing money is bad, but leaving money on the table can be worse. Don’t let FOMO get the best of you. Dollar-Cost-Average into it, and you will find the right balance between buying too much versus not buying at all.