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By David Koch, CFP®, AIF®, CFA, Senior Wealth Advisor

FOMO, the Fear Of Missing Out, is getting a lot of mileage these days. We all know some people suffer from this more than others, although we all experience it to some degree. We all want to be included and feel significant in some sort of way.

The origins of the phrase are interesting. FOBO, the Fear Of a Better Option (not FOMO) first appeared in a piece for the Harbus, the Harvard Business School student newspaper, back in 2004. It was coined by Patrick McGinnis to describe what he and his classmates, those who had entered grad school just after the dot-com bust and 9/11, were feeling. FOBO captured how McGinnis and his peers felt about spending as much time with one another as possible before graduating college and going into a career.

After 9/11, and especially in New York City, young people wanted to make sure they were living life to its fullest, every second of the day. McGinnis even took his GMAT (Graduate Management Admission Test) in New York City on September 10th, 2001. Imagine how that felt?

FOBO in its original form never caught on, but over time it morphed into FOMO. And it took nearly 10 years for FOMO to really take off. Google Trends doesn’t see it really gain traction until 2013, but it is now part of our everyday vernacular. Now FOMO applies to nearly everything, including investing.

FOMO and Veblen Goods – Birkins and Bentleys

There will always be a party that you weren’t invited to, and in some ways FOMO is cousin to “conspicuous consumption,” a phrase coined by the economist and sociologist Thorstein Veblen (1857–1929). This is the practice of publicly displaying luxury goods to convey one’s wealth.

Think Birkin handbags and Bentley SUVs. These are called Veblen Goods, and they are the reason the luxury brands market exists. For better or worse, one big allure of these objects is to make us feel better about ourselves relative to our peers.

If none of your friends has a Bentley, then who cares? But if all your friends drive Bentleys – now you have FOMO.

This definitely happens in the investment world too. There’s always those friends talking about how much money they made on one investment or another. It’s the big gains that are talked about at the cocktail party, the country club, or the gym.

FOMO and Selection Bias – Hey Walter! Come see how much money I lost!

No one ever stands around the water cooler and talks about how much money they lost. So, bragging about investment slam dunks is something we need to take with a grain of salt – or a pound of salt. What you’re hearing is a carefully curated version of each person’s experience of investing that skirts the duds and failed strategies.

Typically, the kind of investing that doesn’t shoot for the big wins and plays the long, steady game isn’t necessarily what people brag about, but it’s what can help investors come out ahead. I talk about this at greater length in my blog here: When is a 5% Return Better Than a 6%  ?

In Part II, I’ll discuss in more detail how FOMO can drive investor behavior – and significant market moves.


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