FOMO, herding, and why crowds are so persuasive
By the time a story is impossible to ignore, the money has been made. You are being offered the exit, not the entry.
Recognise the feeling as information about the crowd, not about the asset.
How FOMO works, in one picture
The same argument as the text, as a chain. Each step is what makes the next one possible.
The market moves first, and recovers first
Shares fall before the data does and start climbing while the news is still uniformly awful. Waiting for the news to improve means buying after the recovery has happened.
- 1
Herding is rational for the individual and ruinous for the group
If everyone is buying, buying works, right up until it does not. Each person is behaving sensibly given what the others are doing, which is exactly the mechanism that produces a bubble. Nobody has to be stupid.
- 2
The pain is real, and it is the point
Watching a friend double their money hurts more than losing your own, and it makes people abandon a sound plan at the worst possible moment. That is the mechanism by which bubbles recruit their last, most expensive wave of buyers.
Late-stage bubbles are populated by people who were right to be sceptical and could no longer stand being right.
- 3
Notice when the justification arrives after the price
In a bubble, the price moves first and the reasons are supplied afterwards. When you find yourself reading an explanation for why something already went up 300%, ask who wrote it and when.
- 4
The defence is a written plan and a fixed contribution
Decide your allocation when you are calm, contribute mechanically, and rebalance on a schedule. A rule is not clever. It just cannot feel envy.
You can name the last time FOMO made you deviate from your plan, and what it cost.
Read next
By the time a story is impossible to ignore, the money has been made. You are being offered the exit, not the entry.
Every one shows its exact method, and the circumstances in which it is wrong. Free, and no account to look.