Bitcoin’s Not the Only Asset Driven by FOMO: Why Stock Market Investors Should Be Concerned

As the bitcoin price gets crushed amid the Crypto Winter, financial commentators are warning stock market investors to not fall prey to reckless buying decisions rooted in FOMO (fear of missing out).

As crypto bulls are aware, FOMO was cited as a key driver of the record bitcoin price at the height of the crypto bull market in December 2017.

‘Most Powerful Force In Market Is Fear’

“The most powerful force in the market is fear,” financial commentator James DePorre writes at Real Money.

“When fear of losing takes hold, it creates powerful downside momentum. And when fear of missing out (FOMO) takes hold, it creates powerful upside. The recent market action is ideal for creating fear of missing out.”

DePorre pointed to the example of Facebook, whose stock soared this week after it beat analyst estimates for Q4 earnings and revenue. For the fourth quarter ended Dec. 31, the social media monopoly earned $2.38 a share on revenue of $16.9 billion.

Wall Street analysts had expected Facebook to earn $2.19 a share on revenue of $16.4 billion. Shortly after Facebook beat analyst estimates on both the top and bottom lines, its shares surged on heavy buying action.

Analyst: FOMO Could Irrationally Pump Facebook

But James DePorre cautions investors to not impetuously follow the herd, which moves in lockstep based on daily stock fluctuations. This is a trend mirrored in the crypto market, where plunging cryptocurrency prices lead to noisy, premature wails that bitcoin is dead.

Despite Facebook’s strong week, keep in mind that it’s still struggling with the ongoing data-breach scandals that tanked its stock just months ago. A good week does not mean the embattled company is out of the woods yet.

Emotional Investing Is a Recipe for Disaster

DePorre explained that FOMO often leads to overly aggressive dip buying, while the fear of losing out triggers irrational selling. Both approaches suck because the animating emotion driving them is primal fear, and not rational analysis.

“The Fear of Missing Out is the main driving force in this market, but that doesn’t mean that we have to embrace that emotion ourselves. Stick to your methodology and don’t let worry of underperformance push you to shift your approach.”

So what’s the solution to fear-based investing? A rational reliance on fundamentals, and a steadfast approach to the latest news that’s moving the stock market.

Yale Professor Breathlessly Predicts Recession

For example, right now there are differing opinions about whether a US recession is imminent. Perma-bears like Robert Shiller ― the bitcoin-bashing Yale University professor ― insists that one is around the corner. And what does he base his gloomy outlook on? Why emotions, of course!

Shiller ― an academic who has never worked in the private sector ― predicts that a protracted bear market looms on the horizon, based on “psychology” and “narratives” ― not based on market fundamentals.

“I’m writing a book on ‘narrative economics,’ and think it is stories that drive markets more than fundamentals.”

So Professor Robert Shiller is predicting a harsh bear market while writing a book about how “bear-market narratives” can trigger them. Let that sink in.

Chief Economist: Stop Wishing For a Recession

Meanwhile, economists who have real-world experience with money say concerns over an imminent recession are emotionally-based and overblown.

Mohamed El-Erian — the chief economic adviser at German mega-bank Allianz — warned that the breathless media hysteria about an impending recession could actually trigger one. So we should be careful what we put out into the universe, he warns.

“I’m stunned by all this talk of recession,” El-Erian told CNBC in December 2018 (video above). “We’ve got to be careful because we can talk ourselves into a recession. That’s how bad technicals become bad economics.

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Crypto’s Newest Patrons Are High-Earning Millennials, a Clovr Survey of Investment Potential Suggests

A recent survey conducted by Clovr, which posits most of its studies around blockchain, has revealed a distinctly upward trend in crypto investments among millennial men earning in the higher ranges of five figures. The study shows that millennials who earn between $75000 and $99999 each year tend to prefer cryptocurrency investments to a great extent. The sample population included more than thousand US citizens aged between eighteen and 80.

The results indicate that millennial men are doubly inclined than their seniors from older generations to invest in this field, with a whopping 43% of men taking the initiative to do so. In contrast, just 23% of their female counterparts took the leap. While these numbers correspond to those earning above $75000, just one fourth of millennials taking home less than $25000 a year have indicated the willingness and ability to invest in cryptocurrencies. If we are to take a look at the median income of millennial men aged 25 to 34, we find a comfortable value of around $44000, according to US Bureau of Labour Statistics Data.

Nearly 40% of those surveyed said that their peers had convinced them to invest in crypto and more than 35% admitted to the urban phenomenon of fear of missing out (FOMO) as the trigger behind their inclination. In a heartening piece of news for crypto enthusiasts, the survey found a significant level of awareness regarding virtual currencies, with over 75% of the sample population expressing confidence in their own knowledge of what cryptocurrency is. A small percentage of 20% claimed that they are somewhat aware of the crypto industry and its recent developments. 62% of these people also said that they would even be able to adequately sustain a conversation regarding cryptocurrencies. 1 out of 3 respondents opined that crypto investment is far more interesting and innovative than run-of-the-mill options like stocks and bonds and about 80% agreed that this novel avenue for investment would be a positive way to take a risk and make money out of it.

Even besides this particular survey, a host of recent studies have revealed the penchant for crypto that pervades millennials today. A September survey by YouGov Omnibus had also reflected a positive attitude towards cryptocurrencies among half of America’s millennial population. Clearly, the interest regarding crypto is in an upswing and a sustained momentum can do wonders for the industry’s overall health.

Author: Rushali Shome
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