The guest commentary below was written by written by Jack Raines, and originally posted on his blog Young Money. This piece does not necessarily reflect the opinions of Hedgeye.
What is the most addicting drug in the world?
It isn't nicotine, heroin, or any sort of amphetamine. It's not alcohol, marijuana, or junk food. The most addicting drug in the world is that high-pitched *ping* that emits from your phone every time you receive a new message, a new invitation, a new opportunity.
The most addicting drug in the world is FOMO.
Noun; informal: fear of missing out : fear of not being included in something (such as an interesting or enjoyable activity) that others are experiencing.
I moved to New York City a month ago for business school, and I swear this city is the living, breathing embodiment of FOMO.
- *ping* "Happy Hour on Wednesday at Jake's Dilemma!"
- *ping* "Birthday party this weekend in Lower Eastside!" "Birthday party next week in West Village!"
- *ping* "Are you joining the club rugby team?"
- *ping* "Do you want to go to Mexico for Fall Break?" "We have a group looking at Puerto Rico!" "What do you think about Costa Rica?"
And that's just the business school stuff. Do you know what happens when your finance blog starts gaining traction?
- *ping* "Do you want to hop on my podcast?"
- *ping* "Can I pick your brain about ____ and _____?"
And of course, I have non-business school friends in NYC to make plans with. Ping. And friends and family back home in Georgia who I want to visit, and who want to visit me. Ping. And trying to make time for your dating life in the middle of the other million things I just mentioned:
Across iMessage and Whatsapp and email and Instagram and Slack and Twitter, I probably receive upwards of 500 notifications a day. What do I respond to? What opportunities are worth pursuing? What is best left alone?
Of course, I want to say yes to it all. But that's just not feasible when you are one person with 24 hours in a day.
FOMO isn't just a social thing. FOMO has many names, and it can hit every area of our lives. "Lifestyle creep." "Keeping up with the Joneses." "Greed." FOMO exists in our careers and portfolios just as much as it does in our social calendars.
Purchasing more expensive cars, houses, and clothes not because you want to, but because you feel obligated to thanks to your association with your peer group is FOMO. Pursuing the job that you don't really want to do, but you want to tell people that you do is FOMO. Saying yes to events that you don't really want to attend is FOMO.
No part of your life is impervious.
Passively investing in index funds is, for most people, the optimal way to allocate their portfolios. The S&P 500 averages ~9% returns per year, and $10,000 invested annually for 40 years would yield ~$3.7M if previous historic trends hold true. If you approach investing rationally, it should be a slow and steady long-term game that pays out over time.
This isn't some closely-held secret controlled by the gatekeepers of finance. There are a million blog posts, books, and articles that cover the benefits of long-term index investing. There are a million more blog posts, books, and articles that cover the perils of taking unnecessary risks with one's investments. And there are plenty of investing platforms that offer you these services for basically no cost.
So why do investors keep pouring money into speculative assets, often to their own peril? Why, in the last few years alone, have we had SPACs and crypto and AMC and GameStop and ARKK and NFTs and so many other things that just didn't make any sense?
Because FOMO doesn't care about rationality. It thrives on irrationality.
- *Ping* "Bro, I made $65,000 on GameStop, you have to get in!"
- *Ping* "EVs are the future, why aren't you buying call options on Tesla?"
- *Ping* "These NFTs are insane, I 100x'ed my portfolio last month."
When you witness a friend make life-changing money by betting on GameStop, or you read an article about a trader who flipped 100x returns buying Tesla calls and NFTs, FOMO ignites that part of your brain that thinks, "That could be me."
FOMO pushes data and statistics to the side and says, "Let's make some money." FOMO tells us that we are the exception, not the norm.
And FOMO, if not resisted, leads to losses. Social FOMO steals all of your time. Investment FOMO incinerates all of your money. Career FOMO destroys all of your focus.
Ironically, FOMO is often a function of your success in a given field. If you are a social butterfly with a large network of friends, you probably get invited to a lot of events. If you have a lot of money, you are exposed to a variety of investment opportunities. If you build a successful career, you will have more and more options for new, exciting jobs.
The better you are at something, the more opportunities that FOMO will throw your way.
But a high susceptibility to FOMO will decrease the success that created your FOMO in the first place, as your attention and energy are spread too thin. If you try to say yes to every single invitation, you will find yourself in countless shallow relationships. The invitations will slow as the connections between you and others fail to strengthen. If you invest in every startup pitched your way, your wealth will evaporate and you will no longer have access to these investment opportunities. If you job hop every time a hot opportunity comes your way, you will never have time to truly refine your skills in any specific field.
FOMO watches you delicately juggle all of your life's responsibilities, and it adds ball after ball until you lose control and drop everything.
FOMO is a dangerous game.
Now to be fair, FOMO isn't always a bad thing. It can motivate you to make friends, succeed professionally, explore your city, pursue love interests, and see the world.
But unchecked FOMO is catastrophic. Like the ship stranded at sea being pulled to and fro by the waves and the wind, FOMO leaves you at the mercy of your outside influences, unable to commit, constantly jumping on the next hot thing.
When everything and everyone is vying for your attention, your "No's" are much, much more important than your "Yes's".