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Human beings are social creatures.
Sure within the masses there are those that are considered loners who tend to isolate themselves from the rest.
But the vast majority prefer to interact with the rest of the populace.
There are likely evolutionary ties to explain the phenomena of finding comfort in larger groups.
Turn on any nature documentary and you can see that predators often pick off the stragglers.
It is within the center of the herd that you have the best chance of safety.
A defensive mechanism that fish employ to avoid predation is to travel in large schools, often forming a massive ball like mass to ward off enemies.
“Comparison is the thief of joy,”- Theodore Roosevelt.
Unfortunately one of the side effects of being a social creature is the desire to maintain one’s standing in the herd.
This can be quite challenging as the goalposts keep changing and kept unrealistically high (due to the nature of individuals tending to broadcast triumphs rather than failures over various social outlets).
This is where FOMO (Fear Of Missing Out) can come into play.
If several members of your particular cohort engage in something and are wildly successful, the rest of the cohort does not want to be left behind and become stragglers that can be picked off by some imaginary predator.
We have all had someone touting the next greatest investment opportunity, be it an individual stock, cryptocurrency, or real estate project.
These individuals may very well have good intentions, sharing information on something that they may have already profited on and now want you to enjoy the same success.
However, as we all very well know, past performance is no guarantee of future results.
Your friend may very well have caught lightning in a bottle, however by the time the opportunity has trickled down to you all the gains may have already been squeezed out, leaving you with just an empty rind.
But when you see your friend(s) displaying their newly found wealth via vehicles, homes, jewelry, or vacations, it is hard not to want to jump right in without due diligence so that you too can claim your rewards.
It is just human nature at work.
If someone finds success doing something, the easiest path to realizing your own success is to copy their methods.
This works, of course, until it doesn’t.
Unfortunately there are individuals out there who indeed act like the predators in those nature documentaries and exploit these behavioral tendencies.
The rug pull.
The cryptocurrency world is like the Wild West.
The number of different cryptocurrencies is fast approaching 20,000.
While some cryptocurrencies may be considered institutional grade, such as Bitcoin and Ethereum, the vast majority are not.
Some cryptocurrencies, such as Dogecoin, were actually created as a joke.
Other cryptocurrencies were born out of more nefarious thoughts.
The initial founders of said coins would go on a mass marketing spree, often paying popular social personalities on YouTube, etc, to shill their projects to unsuspecting consumers.
The more savvy con artists will actually name a coin after a popular social phenomenon (such as the Squid Games) to perhaps convey some sort of legitimacy to the project even though there was no official affiliation present.
Because the market cap of these fringe cryptocurrency coins is so low, any initial money flowing into the project would create huge gains which then create a positive feedback loop.
Soon mainstream takes notice and the coin in question gets an even bigger audience that just looks at these impressive gains and does not want to be left out.
It is FOMO at its finest.
These novice cryptocurrency investors do not do any detailed evaluation of the coin in question, forgoing tokenomics/technical analysis.
They just see the number go up and, much like the Pavlovian dog, instinctually press the buy button.
Thus the situation is now ripe for a rug pull.
The founders, who have kept a sizable number of coins themselves, decide at once to cash out and sell their holdings, which are quite inflated thanks to the influx of money from gullible investors who are still FOMO’ing in.
The drop in price can be quite eye-opening as the novice investors are left holding the bag as millions of dollars can vanish in an instant in quite dramatic fashion (warning, NSFW):
The coin in the above example, the Squid Token, was truly malicious in its design.
The Squid token was designed so that it could only be purchased and impossible to sell (unless you were the founders).
So no one was able to capitalize on the gains seen in the run up, maximizing the profits for the founders.
It was a scam from the start and relied on the concept of FOMO in order for it to work.
Rationalizing FOMO when making unsound decisions.
It would be a blatant lie if I said I never fell for a FOMO scheme.
After my divorce was finalized in 2011, I thought I was owed some positive karma to make up for all the judgements against me when the court believed the lies my ex told.
Having lost over 7 figures, I thought the simplest way the universe could pay me back was for me to win the lottery.
There was a period of several months where I would buy scratch-offs and lottery tickets on a weekly basis, often dropping $100 or more at a time.
As mentioned in a previous post I wrote, I soon found out that, “Karma And The Universe Don’t Owe You *&!@!“
I finally came to my senses and stopped throwing my money away purchasing lottery tickets.
However I have noticed that whenever the jackpot reaches a certain threshold many of my co-workers create lottery pools and often ask me to join by putting in my fair share of money.
Despite my previous experience, and knowing that I am almost certainly throwing this money away, I still partake in the lottery pool.
The only reason for this would be FOMO.
If by some stroke of luck my co-workers did strike the jackpot and I had not participated, I would spend the rest of my life kicking myself for not joining.
There have many instances of individuals who did not participate in a lottery pool when the unthinkable happened and they found themselves left out.
This can create for quite an interesting work dynamic and has even led to lawsuits.
Being on the straight and narrow path is hard, and boring.
By now most of us know what is good and what is bad for us.
But knowing is not the same thing as doing.
If that was the case we would never eat junk food and become overweight.
I have found that in the past when I totally destroy my diet it is because I was being to strict/regimented for too long a time.
I then go on a period of binge eating that vanquishes any gains I made from being on a diet.
The diets I am most successful with are the ones that allow some indulgences.
I think the same thing can be said with potential FOMO situations.
Rather than diving headfirst into a potential FOMO investment, you can sort of satisfy this hunger by limiting your exposure to the downside and allowing you to capture a percentage of the possible upside.
Some folks refer to this as “play money.”
While it sounds childish I do feel that play money serves a purpose in that it can satisfy your FOMO hunger.
If your designated play money amount goes to zero, you still are in good financial shape as the rest of your money is being put to good use.
The amount of play money is up for debate, but I think a good rule of thumb would to keep it under 5% of your portfolio.
If you are lucky enough to catch lightning in a bottle as an early adopter, a 10-100x gain, which is completely in the realm of possibilities, can increase your portfolio size from 50% to 500%.
If you are in search of financial help, please consider enlisting the service of any of the sponsors of this blog who I feel are part of the “good guys and gals of finance.”
Even a steadfast DIY’er can sometimes gain benefit from the occasional professional input.
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