Many of you have become accustomed to the BCM blogs that are released frequently and written from different people on our team. Every month we will have blog posts dedicated to behavioral investing and financial planning.
These are two topics paramount to the values and purpose of our firm. Montgomery Gossen will be contributing to the “The Goals-Based Planner” and Erin McMenemon will be covering behavioral finance and the emotional psychology that goes along with investing in her blog “The Behavioral Investor”.
Has anyone ever heard the term “FOMO” or the phrase “I have a serious case of FOMO”? It stands for the “Fear Of Missing Out” and this emotion has become more and more widespread with increased use of social media. We see pictures and videos of people doing incredible things—dinners, concerts, trips—and we suddenly feel jealous and wish we were doing the same. We find ourselves always thinking we are missing out on something. FOMO typically leads to jealousy of others, dissatisfaction with your current situation, and poor decision-making.
This concept of FOMO applies to the stock markets as well. Everyday the news highlights the stock winners and losers for the day, giving investors FOMO over the big rally or the detrimental drop. If you have to hear from your brother, colleague, or neighbor one more time about their amazing performance or stock picking skills you just may lose it. This year in particular, we have heard it all. In 2018 we have seen the ups and downs in the first quarter as well as a strong rally in Q2 and Q3. It makes sense investors are suffering from stock market FOMO.
Now I would like to welcome the best thing to solve for this unwarranted jealousy—“JOMO”—the “Joy Of Missing Out”. To embrace JOMO is to find happiness being in the present and in your current situation. JOMO is about disconnecting, opting out of the fads and the popular trends and finding peace in the moment.As financial advisors, we are here to shift your mind and worries from FOMO to JOMO in regard to your portfolio and financial future. At BCM, we are HAPPY missing out on the daily chaos and trading in the markets and sticking with our long-term plan. We are happy not trading unnecessarily or worrying about the next “hot” stock, because over time it will not pay off. When the media and our friends insist on informing us how we would have been better off placing heavy bets on the asset classes that have recently done well, we choose to stick to our long-term plan. It is clear why we maintain a diversified portfolio – it provides the most appealing tradeoff between maximizing returns and minimizing risk. Yet, it is hard to remind ourselves of this when it seems like everyone around us is taking advantage of the latest market trends and we are missing out. Of course, changing our portfolio to try and take advantage of a run that has already taken place would be foolish (buying HIGH and selling LOW just doesn’t work).We have been in this position before. In the late 1990s, there was the tech bubble and people wanted to jump on the bandwagon. In the mid 2000s, everyone wanted to borrow funds to buy and flip real estate or invest in infrastructure. In the early 2010s, everyone was wondering if they should worry about a double-dip and get out of stocks to hold cash and gold. In each of these scenarios people hear stories from the news and social media. With the benefit of hindsight, we can see that changing our long-term investment strategy due to FOMO in the short term would have been a big mistake.The last thirty years have taught us here at BCM that when it comes to successful investing, managing emotions are hugely important. While greed and fear (normal market-induced emotions) are natural to all of us, neither is helpful when it comes to portfolio management. We keep the big picture in check through our communication with clients and friends through our newsletter and blogs. We can’t help if you feel jealous about a fancy trip or event you see on social media, but we can bring you some JOMO about your portfolio and the long-term strategy we take at BCM.
By Erin McMenemon