Billionaire trader and investor Stanley Druckenmiller bought Bitcoin after watching its price go up and feeling the fear of missing out, aka FOMO. “I felt like a moron,” he said in an interview with the online news site the Hustle in May. He cashed out part of his $20 million bet after prices soared—“my heart’s never been in it”—but described the stampede of money managers into the cryptocurrency as an elephant trying to fit through a keyhole.
Druckenmiller has felt the FOMO before. In 1999 he loaded up on $6 billion worth of tech stocks, only to lose $3 billion in six weeks. “I was just an emotional basket case, and I couldn’t help myself,” he said years later. This time around, he looks more like a bellwether for a broader kind of investor panic-buying in developed economies after a bruising pandemic year. We are all Stanley Druckenmillers now.
It’s not just crypto: It’s stocks such as those of AMC Entertainment Holdings, GameStop, and Tesla that are beloved on Reddit and Twitter, and it’s the houses and condos being snapped up almost as soon as they list. The pressure to keep up with neighbors, friends, and social media meme lords who seem to be in the process of becoming extremely wealthy—or, at least, talking about it—can feel unbearable. It’s only human, and, as Druckenmiller’s example shows, it’s not something only small investors and novices feel. Telecommunications companies overinvested like a thundering herd in the 1990s, and a lot of them went bust in unison as a result. In the early 2000s, few bankers were willing to tap the brakes on increasingly risky and baroque mortgage investments.
Today, a new generation of stock traders has known market crashes only as short-lived dip-buying opportunities, leading to a record rise in brokerage account openings. Rock-bottom interest rates have fueled big profits on flipping real estate—some $66,000 on average per home, according to research firm Attom Data Solutions. People flush with pent-up savings after a year of lockdowns have more ways than ever to throw darts at the financial dartboard: zero-commission, zero-minimum trading apps; social media message boards; and exchange-traded funds you can hop in and out of as easily as stocks, including a few that explicitly play to the trend-chasing crowd with such tickers as BUZZ and, yes, FOMO.
Cryptocurrencies too have low barriers to entry and trading, which may have helped them rise once they got moving. Those roller-coaster price charts can be consulted day or night and on weekends. Thanks to Twitter, WhatsApp, and YouTube you’re probably fewer degrees away from someone sitting on a meme-coin fortune than you are from Kevin Bacon.
What makes the current wave of FOMO a broad economic phenomenon is that its ripple effects are so widespread. It’s one thing to observe market mania playing havoc with the real-world value of cinema chains and video game stores. But now the value of financial expertise is melting in the heat. Financial advisers are under pressure to talk about crypto with their clients and are “terrified” of looking dumb, as one told CNBC. Bankers who once strode into boardrooms and told executives how to run their business are now facing executives whose companies are going public at billion-dollar valuations without any revenue. David Chermont, head of international investor relations consulting firm Inbound Capital, wrote in a client note that the market is in the grip of “equity populism.”
Even among the political class, the rhetoric is one of a wave—similar to the discourse of investors who claim that if they don’t get on board, they’re NGMI (not gonna make it). U.K. Conservative politician Tom Tugendhat recently stood up in Parliament and warned his colleagues that the dominance of Ethereum over Bitcoin was coming and that huge changes in innovation were afoot.
Edmund Shing, chief investment officer at BNP Paribas Wealth Management, identifies several factors spurring interest in trading: central bank and government stimulus, $5.4 trillion of extra savings around the world compared with pre-pandemic spending patterns, and a generational wealth gap that makes any lottery ticket to riches look increasingly attractive relative to patient clock-punching until retirement. (Incidentally, actual lottery tickets have also grown in popularity.) The best hand-me-down wisdom for wannabe millionaires may be to knuckle down, study hard, work hard, and save with the power of compound interest. But millions of graduates have been hitting a job market cratered by Covid-19, and that’s on top of a $1 trillion increase in student debt in the U.S. since the financial crisis.
It’s easy to see how celebrities and influencers touting crypto schemes and giveaways cut through. Even for the most levelheaded young people, it’s tempting to imagine that one great score on Bitcoin or stock options could wipe out a student loan, help start a business, or put a down payment on a home.
Speaking of housing, the pressure to participate in this booming market strikes deep, as a roof over one’s head is the key to any retirement or economic security plan. Watching prices climb, people with little taste for speculation may nonetheless feel the urge to take on a bigger mortgage lest they be priced out of New York or London or a suburb within commuting distance of any thriving city. Many economists say that there’s no property bubble yet and that higher values reflect stimulus-boosted incomes and affordable borrowing rates. But the median price for a single-family home in the U.S. rose the most on record in the first quarter, according to the National Association of Realtors. One lesson of the last housing boom is that when buying becomes reflexive, and investors feel that the most dangerous move is not to buy, prices can quickly break free from fundamentals.
The narratives about why we invest have economic power. The pandemic has accelerated a feeling of helplessness alongside technological disruption and euphoria at the possibility of huge returns—rather like the dot-com boom, when the internet was understood less in technological terms than as a powerful story. It was a “person-to-person contagion of thought” spread through rising stock market prices, according to economists George Akerlof and Robert Shiller.
Another cause of FOMO right now is the lack of a strong competing narrative. Warning against risky short-term speculation and saying “it’ll all end in tears” are widely derided as boomerisms. Partly because it seems out of touch with Generation Z’s economic reality, but also because asset prices keep bouncing back. Bitcoin’s rebound from a more than 80% decline in 2018 to a record high this year, along with property and stocks, is classic regret fuel for those who missed out.
Index investing pioneer Jack Bogle always promoted boredom as a virtue: “If you’re in investing for excitement, you are a damn fool.” It says something that financial professionals are now gritting their teeth and dabbling in crypto rather than sticking to the get-rich-slow machine of the stock market.
Speculative forces tend to move in hard-to-predict cycles that leave deep scars. Historian H.W. Brands described how the 19th century gold rush in California displaced a Protestant work ethic and agrarian ethos in favor of a get-rich-quick, something-for-nothing mentality. “El Dorado, not some Puritan city on the hill,” he wrote, became the American dream. It’s easy now to dismiss regulatory warnings against misleading advertising, investing frauds, and reckless crypto investing as puritanical and old-fashioned. But at some point we may wonder why people couldn’t see the flashing red lights.
Until then it should at least be possible, without finger-wagging, to suggest that life loses something when it’s built around FOMO. A recent Bloomberg News story about an MIT cryptocurrency project pointed out that some alumni were sitting on life-changing gains from tokens that were handed out free to students seven years ago. Yet credit should surely go to the one graduate who claimed to feel no remorse from selling her Bitcoin early on: “It was free money … I got an MIT degree, which is the most important thing to me.” Why put those hit by crypto lightning on a pedestal?
Some experts believe the cure for FOMO will be a rise in interest rates as inflation picks up. Schroders CIO Johanna Kyrklund reckons risky moonshot investments will be less enticing once safer ones such as bonds start to pay more. Referencing the boomerish Huey Lewis and the News song Hip to Be Square, she suggested in March that portfolio diversification, patience, and prudence—and not Bitcoin—would soon be back in vogue. But that’s cold comfort as long as brokerage balances keep getting passed around on Reddit and vaccine euphoria fades. If even Stanley Druckenmiller didn’t learn his FOMO lesson the first time around, what hope is there for the rest of us?
Laurent is a columnist for Bloomberg Opinion.
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