Investing FOMO

If you walked into a room of institutional investors (think Calpers and Harvard/Yale Endowments), you might not want to discuss how your investment strategy mimics the lessons you have learned through parenting.  Since David Swenson at Yale hasn’t called me yet, I believe I have some latitude in making this pitch on this website.  If he does call, maybe I could add some graphs and some mathematical variables and call it a good.  Until then, here’s one lesson, hopefully in a series of ideas, that I have learned about investing from my 8 year old and 5 year old (we have a 2 year old also, but she is still developing her investment strategy).

Naomi, my 8 year-old, has attended some fun birthday parties and other various events over the course of her life.  If she goes to these events alone or with only one of her parents, her first question when she walks through the door is: What did you guys do?  What did I miss?  No matter how much fun she has had, she has what appears to be a life-threatening fear of missing out on something, anything?  I have been informed that this particular personality trait has a name, Fear of Missing Out, or FOMO.

FOMO does not seem to wain with age.  Investors often have this disorder trait in their decisions.  Google, Facebook, Apple, Netflix, Herbalife, Sears, Valeant, whatever Ackman is doing, whatever Icahn is doing.  The list goes on.  And I can understand why.  Headlines and stories of the business press are dominated by a handful of names.  If you are reading the WSJ every day, it is easy to understand how someone could have a passing interest in these names.

To be clear, I don’t have anything against these particular names, but I think that great investors play in their own sandbox.  The companies mentioned in the Wall Street Journal may or may not be in that sandbox, but it takes great effort and consciousness to avoid being pulled in that direction when these are the companies you confronted with each morning.


More to Explore

Returns for Great vs. Bad Businesses

Munger and The Cattle Rancher

Munger’s ability to find great businesses is directly related to his ability to consistently discard bad businesses. He is excellent at inverting, and discarding the bad businesses as quickly as possible.

The Abominable No-Man and Bad Management

Some investors think a business is good, but know that management is bad.  These investors justify the investment based on the idea that the great price of the business is worth the bad management. This is akin to marrying a supermodel who is going to yell at you all day.  Whatever pleasure your eyes may derive from the marriage, your ears will endure a greater amount of pain in the long run. The pocketbooks of those partnering with bad management are likely to see a similar 50%+ decline in their net worth.

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