How I deal with FOMO, GameStop, bitcoin

This is one of the most difficult parts about investing.

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I’m often asked, “how do you deal with FOMO?”

“FOMO” stands for the “Fear of Missing Out”. It’s typically driven by your worry that you’re missing “the next big investment opportunity “. It seems “everyone else is making a ton of money” and you’re not.

Most recently, think bitcoin or GameStop.

We can partially thank the financial media for this, but they’re not due all the blame — part of it is ourselves, our own brain, human psychology, working against us.

This is one of the most difficult parts of investing.

How do we fix this, or at least try to combat it?

The strategy I’m about to explain is what works for me. It may not work for you, and it certainly won’t work in everyone’s situation.

During the earlier years of my investing career, I would see events unfolding that cause FOMO for many people. Being a strict value investor, I had the self-control to think rationally for a bit, but then I would fold — I’d cave to the pressure and ultimately end up buying in. However, since I tried to fight the urge to invest, I’d often buy in too late and near the top. Countless times I bought towards, or at, the top and was left “holding the bag”.

After learning my lesson a few times, I decided to stop participating altogether, but that led to a new issue.

A bit of resentment starting to build up. The FOMO also continued to build up and every time a new FOMO event came around, it became worse and worse.
I spent a lot of time thinking about this dynamic and how I could beat it.

I knew it wouldn’t be easy, but I knew there had to be a way.

Nothing came to mind for a while, then it hit me.

How do you stop your arm or nose from itching? You scratch it. If you don’t, the itch gets worse, and worse, and worse, until it’s unbearable and you can’t help but to scratch it.

My strategy is the same for FOMO events.

If I didn’t participate, the FOMO continued to build up, I’d eventually cave in and participate, just like with scratching an itch. Not only that, but human psychology makes us want to overcompensate for previous FOMO events we “missed out on”.
Instead, what I started to do, was participating in nearly all of them.

That’s right, I bought bitcoin. I bought GameStop. I participated in numerous other FOMO events as well.

The important piece isn’t that I participated, but more so about how.

I’d enter with very small positions — just enough to “scratch the itch”. When I’m considering these FOMO events and position sizing, I always ask myself, “would I be more frustrated that I lost this money or that I didn’t participate in the upside at all? Would it impact me more if I lost the money or if it continued to skyrocket and I had no skin in the game?”

By participating, not only was I “scratching the itch,” but there are two other important dynamics at play. I was learning from every situation and I was risking small amounts of money. Every investment you make teaches you something if you let it. If you reflect on it, as you should, there’s always something to learn.

As for risking small amounts of money, I’m assuming most of you, like myself, are investing relatively small sums of money. If I put a thousand, or a few thousand, dollars into an investment and lose it, it’ll suck. But, it’s not the end of the world. I will live to fight another day and can likely come back from it.

However, now imagine you never participated in any of these events even though you wanted to. You never learned anything from them, and the FOMO continued to build up. Now you have a hundred thousand dollars to invest, or hundreds of thousands, and you reach a point where the FOMO is unbearable. You enter a position and lose it all. Now you’re down hundreds of thousands rather than a few thousand.

Losing hundreds of thousands of dollars is very hard to come back from, but losing a few thousand dollars is a relatively cheap form of education.

This thought process has helped me significantly.

I no longer suffer from FOMO — or very rarely.

The itch no longer grows with each opportunity that passes by and I can approach investing far more rationally.

All the best,