Investors may have 99 problems but FOGO shouldn’t be one.
Most are familiar with the term FOMO. fear of missing out. This is the perplexing desire to purchase things you don’t need to impress people you don’t like.
While this attitude produces prodigious damage to your finances and quality of life, there’s something more sinister lurking in the darkness inside peoples minds.
FOGO or the fear of getting obliterated has always been hiding in the weeds but is gaining more prominence with the evolution of AI.
Many apocalyptic scenes have been game planned not only by AI’s critics but also by some of it’s founders, These nightmare scenarios seem to be creeping into the markets at a steadier pace than usual.
Last week’s market mayhem always brings the worst of these impulses to the forefront largely aided by an inaccurate and intellectually lazy media. Pundits conceived all kinds of explanations for the market’s dramatic moves. Since their main purpose seems to be to speak to people like they are simpletons and create unnecessary anxiety, they didn’t disappoint.
According to the experts, the markets went down because the Democrats secured control of both the House and Senate. This would lead to intense regulation of AI and a collapse in spending which according to some has fueled the markets gains the last few years.
What they failed to mention was only a partisan stuck in the world’s utmost political echo chamber didn’t believe the Republicans weren’t due for thrashing.
Markets react violently to the unexpected. The grounds for a political reason for the meltdown didn’t hold muster since most of this story was baked into future expectations.
My Colleague Barry Ritholtz, pointed out the actual reasons for the market hysterics which as usual was ignored by the media since they’re complex, not incendiary and shrink the ability to feed on investors primal instincts.
The third potential cause – and in my mind, the most significant – was a huge, leveraged growth unwind by the major multi-strategy hedge funds. These pod shops are filled with quants who frequently end up in crowded trades – this time, it was semiconductors and AI.
Rumors circulated that ~108 separate pods closed and unwound on Thursday in what is best described as “forced liquidations.” That might help explain the fastest $2.5 trillion wipeout on record. (Note we saw a somewhat less ugly selloff on the last trading day of October).
Few heard this explanation, so the cascade of horror began, especially by those with strong political affiliations and a lack of historical perspective.
Will it ever stop going down?
Am I going to lose all my money?
In other words, FOGO juiced on steroids.
There are a couple of lessons to be learned here.
- Mixing investing with politics is an awful idea, all the time.
- If you lose all your money in a diversified mix of low cost index funds owning the stock markets of the world, your portfolio would be the least of your worries.
This isn’t to say meeting one’s Waterloo in the stock market can’t happen.
For example, inappropriate investment products are far too accessible for the average investor. New isn’t always better.
Come for the dangerous concentration and stay for the destructive leverage.
As far as investing 101 goes FOGO should never be part of your vocabulary concerning your retirement portfolio.
It’s impossible to participate in stocks eventual recovery and ascension to new highs with a permanent loss of investment capital headlining your trading resume.
If your worst FOGO becomes your reality, either you took too much risk or it’s end of the world.
Only one of these scenarios you can control.
Choose wisely.
