By Dr. Peter Kim of Passive Income MD, WCI Network Partner
At some point in your investing career, you’ve likely heard of a stock that’s gone on a ridiculous run or a certain part of town that has now become the trendiest in the area, and you’ve kicked yourself for not investing. We’ve all been there.
Well, the cliche is true: hindsight is indeed 20/20. In hindsight, who wouldn’t have purchased as many shares as they could have of Amazon or Apple back in the 90s? Knowing what I know now, I would've also bought as many properties as possible in certain areas of Los Angeles a decade ago.
However, we must realize that in investing, as in life, capitalizing on every opportunity is simply impossible. Many times, we think about all the hypothetical returns we missed out on, which does nothing more for us than waste time. Worse, it creates this sense of FOMO (Fear Of Missing Out) that may lead us to chase the next ever-elusive “hot” stock or investment trend with limited to disastrous results.
Where Does FOMO Come From?
The concept of FOMO is partially associated with the social anxiety that results from watching the “highlights reel” of other people's lives playing out on social media. We all have those friends on Facebook or Instagram who seem to pack in an exotic vacation every other day. It’s hard not to feel like you’ve missed out on some similar experience.
But from an economic perspective, FOMO is a psychological phenomenon associated with loss aversion, particularly in terms of financial decision-making. According to Huffington Post:
“In behavioral economics, and decision theory, the psychology behind FOMO can be partially explained by loss aversion. Amos Tversky and Daniel Kahneman demonstrated people's strong tendency to want to avoid any losses. In fact, the research suggests that losses are twice as impactful on people, psychologically, as gains. This leads to risk aversion; we just hate to lose out on anything.”
Hating to lose out on anything can inadvertently lead to trying to get a stake in everything, increasing the risk of investing in hyped-up stocks and trends for fear of missing out on a potentially big payoff rather than for legitimate value.
We need to avoid this at all costs. Here are a few actionable steps to take to avoid acting purely due to the fear of missing out.
Start with the Goal in Mind
Every good sprinter knows that you keep your eyes on the finish line. You figure out where you want to be and reverse engineer things to get there. Think about the following and use them to personalize a goal for yourself:
- Where do you see yourself in 20 years? How about 10 or five?
- Do you plan on retiring early or do you plan on gradually retiring?
- How much additional income are you looking for each month to fund the lifestyle you want?
More information here:
Create a Basic Strategy to Meet Those Goals
Have you created a basic investment plan? If you’ve taken The White Coat Investor Fire Your Financial Advisor course, you’ll have one by the end of it. But in short, it details what your goals, strategy, allocation, and timeline should look like.
Personally, my strategy is focused on creating monthly passive income. All of our lives, we’re taught to think in terms of our monthly income, and we pay monthly expenses. Call me simple, but I think that if I make enough in monthly passive income to cover my monthly expenses, then that’s freedom to me. Of course, I also like to have some padding for changing life situations and unexpected events.
I decided to create that passive income through a combination of real estate (rental properties, syndications, funds, crowdfunding) and some businesses that produce residual income.
Be Wary of ‘Hot Tips'
Make sure you always do your own due diligence. I used to follow the stock pickers on TV and on investment websites. I followed their portfolios diligently and made a lot of my buys based on their advice. I felt if I didn't follow it, I would kick myself later. I just didn't want to miss out. Well, that turned out consistently poorly for me. My father also followed hot tips from friends with often disastrous results. In fact, I lost over $100,000 on a hot stock tip.
Knowing how to decipher data and coming up with the right conclusion before others do is a huge part of what successful investing is all about. Once information about a hot stock is online or on TV, let’s be honest, you’re the last person getting in–and that’s not where you want to be.
Similarly, investing in a “hot area” of town, after the price has had a significant run-up, is not the best time to come in on an investment. Better to always be on the early side, if possible.
In any case, take all these so-called hot tips with a grain of salt, and do your own research.
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Realize That You Never See the Full Picture of Other People’s Investments
You may hear from a friend that they crushed it with a certain investment. But you never know what happens next. You also don’t know what losses they’ve incurred in the past.
You may even see some of my results, like my crowdfunding results, and think you have to get in now to get the same results. Unfortunately, things never work like that. I don’t try to pretend you can duplicate my results exactly. You may do worse, or, hopefully, you'll do much better. All I try to do is introduce different ways to invest and share my results.
Here’s what I tell people: let others’ successes and failures inspire and motivate you to learn more. Don't just go chasing others' results. If you’re interested in real estate, go and learn more. See if it’s a good fit. Figure out what works for you.
More information here:
Focus on the Long-Term; Be Patient
Most serious investors know that investing for wealth is a marathon, not a sprint. You certainly won’t hear me talking about get-rich-quick schemes.
So, I’ll stress this again and again: focus on the long term, not the minute-to-minute. Doing the latter will drive you bonkers. Plus, you probably don’t have the time to micro-manage every single investment.
Come to think of it, that’s one of the things I really like about real estate. It’s a long-term play for the most part (unless you’re trying to flip). I’m building wealth steadily as my tenants pay off the properties for me, and I receive cash flow on top of it.
When I invest in syndications and funds, I know it’s a long-term game, and the expectation is that I’ll get consistent cash flow over that period. This mindset reduces my stress, helps me avoid serious FOMO, and also allows me to focus on other ventures.
Don't forget to sign up for the free White Coat Investor Real Estate Newsletter that will alert you to opportunities to invest in private real estate syndications and funds, including most of those that Jim Dahle invests in.
Avoid FOMO, but Start Investing
Ultimately, you may not be able to build a time machine to take you back in time to purchase the stock that got away or that property that would've made you millions. But you can take steps in the present to help reach your long-term goals.
Invest in a way that makes sense for you and your goals, and please, try your best to avoid FOMO.
Have you had a hard time avoiding FOMO? What other strategies have you tried to halt that mindset? Or have you found it easy to stay the course? Comment below!