FOMO, a no no
Nothing is ever as good or bad as it seems, it is just fear existing
The US economy is going to implode. Everyone is going to be unemployed. The sky is falling. Just wait, that is all eventually going to happen. It hasn’t happened yet, but any day could be the day the hole finally sinks the ship. Calls over the past year religiously sounding this alarm. We haven’t got there yet but eventually; we will get there. The S&P at 3,000. Unemployment above 5%. A nasty recession poisoning the world economy.
Unsurprisingly, none of this has transpired. The S&P is above 4,300. Unemployment is at 3.7%, a record low. A real belief exists for a soft landing and a total aversion of a recession.
Calls for a recession have littered the Twittersphere, our television airwaves, and the financial newspapers for well over a year. All driven by the fear of missing out, FOMO. No one wants to miss calling the recession and have someone else beat them to it, the world in which we live. To miss out is to fail.
We live in a world of continual evaluation of us to our peers. It is a race to be right and a race to get rich. The competition intensified by trying to keep up with the world. Someone is always there to chase down.
Charlie Munger puts it quite well.
“Someone will always be getting rich faster than you. This is not a tragedy… The idea of caring that someone is making money faster than you are is one of the deadly sins.”
The beauty of the world is the diversity we are afforded. Everyone has a different background, a different upbringing, and the game of life for everyone is different. The luck and risk associated with everyone are never the same. Some are luckier than others and others willing to take more risks. Despite everyone playing a different game, we are concerned about ourselves in relation to others. We all have a fear of missing out.
Why FOMO is a no no
FOMO is a helluva drug and it is a dangerous one at that. FOMO shrinks your outlook and condenses your time frame into a very short-term timeline. It is a derivative of not having enough time and thinking your time frame of taking advantage is dwindling. You are too enthralled at the thought of people making money while you’re missing out that your judgment becomes severely clouded.
It has all been exemplified by social media. People’s judgment is more muddled than ever before.
Imagine in the year 2023, you can get 10 times the APY of that of the average savings account. At the surface level, there seems to be something inherently wrong. Something that seems to be good to be true.
On July 1st, 2022, BlockFi updated their interest account rates on bitcoin to be up to 10 times the average APY of the average savings account. If you could easily 10x your money, why wouldn’t you? The money hack is right there for the taking until it isn’t.
Not even six months later, on November 28th, 2022, BlockFi filed for bankruptcy. More than 100,000 creditors and $227 million, all uninsured. It was too good to be true.
Banks have been around for over 200 years, established organizations if you will. If a digital asset lender can come in and offer 10x the rates of banks, banks have been doing something wrong for the past 200 years. Not to mention, if someone could offer rates at those levels and make it work, it is fair to assume, someone would have figured it out in that time well before BlockFi. The human race is quite smart.
Sadly, a lot of money was lost. It is a dire situation. The SEC has agreed to scrap a $30 million fine until all creditors have been paid. $30 million is a sliver of $227 million.
The crypto craze may have utility but it is largely tainted by FOMO. 10x the APY you can get on a savings account seems too good to be true. If someone walked up to you on a street and offered you to join a business and 10x your returns, you would immediately be a skeptic. FOMO disorients people's judgment. You get caught in a chase you can’t win but are led to believe you can.
Social Media Furthers Fear
The race intensifies with social media. Now, more than ever, we are interconnected and can see the lifestyle and luxuries our peers are afforded, an easy way to continually evaluate ourselves. Social media is littered with get rich quick schemes that are further perpetuated by the fear of missing out.
A TikTok went viral this week where a TikToker explains how you can get a $100,000 watch without spending any of your own money. The whole premise of how to get it for free is to open a business you don’t care about, open business credit cards, buy the watch, sell the watch to the jeweler for cash at a slight loss, and then file bankruptcy for your business so you are not personally liable. The TikToker later explains it is a joke but his video and then initial comments would prove otherwise.
34% of Gen Z gets financial advice from TikTok, not exactly a great omen. Luckily, the comments understood how no money printer exists like this. The need or want for a $100,000 watch is purely a status chase that is driven by FOMO and content like this gaining traction on TikTok are people not wanting to miss out.
Nothing the TikToker said makes sense on any level. It is utter nonsense. It is when you take a step back and try to evaluate the video, it is then realized that it is driven by FOMO. The need for a $100,000 watch, a status symbol, and an explicit, objective way to value wealth. Something that very few, if any, have at a young age. Nothing will be missed here. Instead, peers will be left behind. Maybe, Jerome hasn’t hiked enough if people think $100,000 money hacks exist.
The AI Goldrush
Jerome has, up until this point, hiked interest rates at an appropriate pace most would say. The S&P 500 is up 13.71% YTD and 11.49% over the past year while inflation trends downward. Rather, healthy returns. Although, concerning to some, it has largely been driven by the large tech stocks, including Nvidia.
Nvidia, a major player in the AI craze, reported their Q1 2023 earnings and proceeded to destroy earnings and moon roughly 27.4%. 21 firms then proceeded to upgrade their price target promptly after a jaw-dropping rise. Some price targets nearly doubling. Not to mention, the stock has risen 198.91% over the past six months.
The stock market is the most efficient market in the world. Everything is largely priced in, to a degree. For the market to misprice something that drastically is a bold claim and for 21 firms to all upgrade the stock is a fear of missing out.
No one wants to miss out on an opportunity for stock to appreciate 27.4% after earnings or gain 198.91% in the past six months. Imagine how bad the stock market would have to misprice an equity for 21 large firms to see something that the people, or market, can’t. No one wants to be like Cathie Wood, who sold Nvidia before the pump and missed out on $200 million in gains. Something that has made headlines more than Cathie would like.
Parting Words
The fear of missing out is a dangerous game. It involves upgrading a stock and price target when not only the stock went up 27.4% overnight but it is at an all-time high. It is a game that can never be won. Someone always has something you don’t have. Someone always making a larger return than you. The game of life is different for everyone else. Don’t get caught trying to play someone else’s game because they have something you don’t. That is surely a game you will always lose.
Thanks for reading.
Scantron’s Selections - A few things I loved this week.
Rich Roll Podcast - Chris Paul - Admittedly, not a huge Chris Paul fan but he grew on me and really interesting to hear how he works/thinks
Connecting FOMO to these trends is a great insight. One thing I'm considering is that not only does it lead to folks to irrational exuberance, but it also causes them to completely miss the real factors that started the trend. Crypto could do some incredible things for artists and creatives.
Instead, celebrities got hot and bothered about ape cartoons and Gary Vee made a song with Snoop, a thing that I still can't believe is real.