If investors insist on trying to time their moves in the stock markets, Warren Buffett said almost 20 years agothey must be afraid when others are greedy, and greedy only when others are afraid.
It’s good counter material. And the traditional depiction of markets under the permanent control of these two animal spirits has enduring appeal because (nuances and caveats aside) it actually explains the psychology of the market quite well. The difficulty arises, as now, when greed and fear begin to be defined as the same thing.
In the analysis of the FTX collapse — and of a host of other recent debacles that seem ominously comparable as loose money era phenomena — fear of missing out (Fomo) has repeatedly emerged as the critical ingredient in accumulating investments before the crash. Fear, in this use of the word and in the context of FTX and the broader crypto rise, was creating something that looked a lot like irrational exuberance. This exuberance, in turn, was fueling something that behaved from a market’s point of view much like greed during his periodic stints behind the wheel.
As the Fomo narrative goes, investment money (much of it under the auspices of large and seemingly respectable funds) is collectively accumulated in particular assets (in many cases, with minimal due diligence) not because I necessarily believe in the underlying opportunity, but because the rewards are presented as unmissable and the consequences of delay or skepticism are somehow terrifying.
The idea is not new, although the acronyms are. Similar thought processes have come before in past crises. In 2007, Citi’s Chuck Prince emphasized the need to keep dancing to the music—a freely chosen indulgence presented as an unquestionable obligation.
So is the current version of Fomo just greed in disguise? It is tempting to think so, or at least to conclude that the word “fear” here describes a more discretionary and easily overcome fear than, say, fear of loss, value destruction, or worse. Presenting Fomo as a genuine fear requires evidence that there is a price to be paid for getting lost (of the kind shops experience, for example, during panic buying triggered by public alarm). Self-recrimination for a missed bonanza, or the anger of a dissatisfied investor, don’t quite count.
However, over the past half decade of technology-focused investment, masayoshi sonSoftBank has led the way in instilling a more legitimate set of Fomo concerns for certain investors. When the first of its Vision Funds launched in 2017, the $100 billion vehicle was explicitly designed to create a new genre of technology investing.
It did this (or planned to) by using its scale to not only identify potential winners, but also provide them with enough funding to ensure that, on metrics like market share, they likely would be. This implicit guarantee of dominance, imperfect as it may be, sets a tone that will resonate: if investing is not about prospects but about sure things, then Fomo is not greedy but wise.
With technology and crypto Fomo now in limbo, a much larger and more complex version now looms on the horizon in China, and could dominate corporate and financial investment next year. A good number of fund managers say they are already positioning themselves for a near-term “Fomo event.” A relatively quick reopening of China or a sharp relaxation of the zero-covid rules is a change that no global or Asia-focused investor can afford to overlook. The feeding frenzy could escalate very quickly.
But the longer-term Fomo trade relates to geopolitics and the way US and Chinese industrial policies have clashed enough to make some form of decoupling seem more inevitable. Behind the rhetoric of the US Chip Act and Made in China ambitions are geopolitical changes that could eventually force more and more companies, in the US, Europe, Japan, South Korea and elsewhere, to to choose between the two blocks. In some cases, this could take the form of redesigned supply chains and other “embedded” investments to enable two-way manufacturing and sales.
For others, however, there may be great pressure to reconsider being in China. And business leaders and their investors should perhaps consider that there may be valid reasons to miss out on the world’s biggest engine of gross domestic product growth. This will, indeed, put the “f” in Fomo – the question is whether the fear is strong enough for companies to back off before it happens.