FOMO (Fear of Missing Out): Is it killing Your Trading and Investment Performance?

FOMO is a label for an ‘irrational’ fear of – 'what a person will miss out-on’ or ‘regret’ if they fail to take a particular action.

FOMO can lead to sub-optimal levels of performance, and can be extremely detrimental to a person’s trading and investment practice. Paradoxically FOMO can result in creating the very situation a person is trying to avoid: They 'Miss out'.

Some typical effects of FOMO include:

  • Traders can feel overwhelmed and paralyzed by markets, they then lack an ability to focus and orient themselves in a productive way. This may be seen in people staring endlessly at screens, unable to tear themselves away for more than a few minutes.  
  • A false ‘illusion of control’: Many traders feel they have more control over the market than they really do, and that being by the screens actually increases that control. The effect of this has been highlighted in studies which have shown that the ‘more control’ traders think they have over the market, the lower their actual levels of performance. 
  • An inability to exit trades: Traders fear the market will turn in their favour if they are in a losing trade, or they will fear it will move further in their favour if they take profit, thus they remain longer int he trade than they should. The real fear is that they will come to ‘regret’ whatever they do, thus they avoid doing it. 
  • Impatience: This can be seen in repeated poor ‘market-timing’. – Market entry and exit is not an exact science, but allowance should be made for the natural ebb and flow of the market. 
  • Overloading: A tendency for traders and investors to take on too much work, too much risk,  too many views and positions, to run overly-complex portfolios. 

    So what is Occurring? 

    Too often ‘Behind the curve’: - Missing out is ‘inevitable’, we can not have it all. However the ‘Fear of Missing Out’ is an ‘emotional reaction’ which results from the attitude of having multiple options open to us, and a lack of a clear idea of what we want or how we will proceed to get it. Most people have a fear of missing out to some degree, however FOMO is far more pervasive and becomes a strong negative driving force. FOMO may be a sign that people feel they are too often ‘playing catching up’, or ‘risking getting left behind’. It is far better to want to succeed as a primary goal or urge (A positive goal), rather than wanting to succeed for fear of being left behind in some way (A negative goal). 

    Lack of Balance: - Balance is a vital component of working performance in a complex environment. This is true whether one is involved in trading or investment, management or leadership, or any other profession for that matter. Too often people ‘over-focus’ on matters considered ‘urgent and important’, such as the market price action or news, and fail to focus enough on matters considered ‘not urgent but important’. ‘Not urgent but important’ include process, money management, risk management, head-space and professional development. Steve Covey, in his best-selling business book ‘7 Habits of Highly Effective People’, used the following matrix to emphasise this. 

    On the ‘Urgent-Important’ matrix, too much time was spent in Zone 1, at the expense of focusing on activities in Zone 2, undermines people's effectiveness. People who display FOMO spend far too much time Zone 1, and virtually no time in Zone 2.–  It is crucial that people find the balance, taking time off the screens and focusing on planning, money-management, discussions with colleagues and others, headspace. 

    The FOMO Paradox: FOMO can create the very thing one fears – ‘Missing out’.

    FOMO can only detract from performance, either suppressing gains or exaggerating losses. Eventually that becomes part of one’s own private race to the bottom.

    I have seen a number of the trading and investment professionals I coach display signs of FOMO. They may still be profitable, but the FOMO is suppressing their level of profitability,
    eventually if unchecked this will turn into losses and continued sub-par performance. One Investment Bank client of mine, who I coached a few years ago, had seen his performance levels drop sharply, after what had been some very strong years. During the early coaching sessions with this client it was clear he was displaying signs of FOMO. He was glued to his screens, staying behind long after his colleagues left. He had also stopped going to the gym during the day, and was often finding excuses to pull out of client visits with his sales team. He was at times even suppressing toilet breaks. His trading had become erratic and nervous, he was failing to hold trades, buying tops too often and selling near lows, and quickly grabbing profits. This FOMO was being echoed in his broader life, fearing that he was not going to be as successful as other friends and colleagues. There were no signs that this was the case, but the fear was making it seem real, and this was proving a major source of stress, thus further undermining his performance. The danger, and the paradox, was that if he carried on like this, he may end up creating the ‘missing out’ of the very success he desires.

    As a coach, I worked extensively with this client to help him transform his behaviours and attitudes. Over the next few months he started to make a number of improvements and changes. The effects were startling, he was no longer glued to his screens, he was able to start going to the gym again during the day, which had the added benefit of further improving his mindset. He started taking days out the office to visit clients with the sales team, and felt more comfortable taking time off work. The biggest change was his attitude to work, rather than constantly playing catch-up with the market, he was now pre-empting the market. The performance improvement was staggering. At the start of the assignment, 5 months into his year, he had been flat for the year in a market that had proved productive for his colleagues. By the end of the year he came in well above budget. – The following year he was one of their top performers. Even now, some 4 years later, his performance is still going strong. 


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    Final thoughts.

    Trading and Investment requires ‘Behavioural Mastery’. The market will find any ‘Behavioural’ weaknesses you have and exploit them. FOMO is a destructive behaviour which will if not tamed leads to sub-par results. This may not be obvious to you, you may still be profitable, but you will not be achieving the level of profits you are capable of. Overtime, if not addressed, your confidence levels, self-trust and self-belief will be impacted. Ultimately, your performance may continue to drift and wain, to the point where it is no longer viable for you to continue. Addressing ‘Behavioural’ matters should be a priority for any trader looking to improve and enhance their performance. 


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