hi i'm jimmy in this video we're looking
at how investing
fomo also known as the fear of missing
out and investing
can really hurt our long-term investment
portfolio
and it's been really interesting to see
how many comments in
some of my videos to to see how
widespread investing fomo really is
these days
so my goal with this video is to point
out some of the ways that investing fomo
can rear its ugly head
to how to notice whether or not we are
in fact doing it ourselves
and ultimately how what we can do to
avoid
making foolish investment decisions
because of the fear of missing out on a
great investment so generally speaking
fomo investing is when we buy
something because we think that the
price of that stock or investment is
going to move
significantly higher and we don't want
to miss out on the opportunity to make
easy money now we might hear this and
say
well isn't that investing in general the
goal is to buy something low and sell it
at a higher price
and yes of course this is true but
fomo investing is actually way different
than
genuine long-term buy and hold investing
long-term buy and hold investing is
generally
much more disciplined and it takes a
decent amount of effort
to do it well fomo investing is buying
something
because it's hot right now because it's
popular and
everybody's doing it everybody's talking
about it without a true understanding of
why we're buying
whatever that investment is now i should
also point out that i think that
investing fomo is actually more common
in younger investors
call it mid-20s and down now sure we are
all vulnerable to
investing fomo but i think it tends to
be more common
with younger investors and i actually
understand why i mean look at this chart
of the s p 500 so
we'll call it broadly this is
representative of the stock market
look at the stock market over the past
12 years i mean
if we were 12 years old when this chart
first began
well we'd be 24 right now look at what
the stock market has done
now we're 24 and probably making tick
tocks screaming about how we should all
become millionaires buying bitcoin or
something
so i bring this out because i understand
how we got here
and actually think it's much worse today
than it was let's say 12 years ago
because of platforms like youtube or
instagram or tick tock where you have so
many people
who perhaps don't truly understand
investing
sitting there talking about how easy it
is and how
simple it is if you just follow the
crowd
and do exactly what everybody else is
doing when
this is all they've ever known they've
only ever known a stock market that goes
up
for a long period of time but as warren
buffett famously says
only when the tide goes out do we
discover who's been swimming naked
okay so one of the biggest
investing fomo investments out there
is bitcoin at least for many people and
i actually haven't spent much time on
this channel
talking about bitcoin and that's mostly
because i just don't see the value the
additional value that i would bring
by discussing uh an investment like
bitcoin
but just to illustrate my thought
process behind bitcoin
i actually had a conversation with a
friend not too long ago it was a few
months ago
and he was trying to sell me on the idea
that bitcoin was the best investment
ever now i'm not a hundred percent sure
on this
but based on the timing of it i believe
he bought it somewhere in the
mid 40s to low 50 000 range so right
around
this time period and then when he was
telling me about it it was a little bit
after that was a few months later and it
was about 60
000 at that time so from an investment
perspective he was actually doing quite
good
especially considering how short period
of time he had been in the investment
now i tried to explain to him that being
a long-term investor
i much prefer to buy an investment below
what i calculate the fair value to be
when i asked him what he thought the
fair value of bitcoin was
he said at least double the current
level don't forget at that time was
trading
about sixty thousand dollars well then i
asked him why is it worth
double the current price not that time
was sixty thousand so why is it worth a
hundred twenty 000.
he replied why not okay fair enough i
guess
and then i replied to him well can it be
worth can't we say it's worth 200 000.
he said absolutely i said what about a
hundred thousand he said absolutely
i said what about fifty thousand he said
sure that's possible
i said okay what who's to say it's not
worth a million dollars
and he said exactly it could be
i said okay well who's to say it's not
worth a hundred dollars
he replied something along the lines of
i don't that's no i don't think that's
the polite
i don't think that's a real price it
should be worth way higher but the point
i was trying to make to him which i
clearly did not do a good job of
was that if we could say that bitcoin is
worth
50 000 could be a fair value it could
also be a million
well that's so really we're saying there
is no way to define what bitcoin is
actually worth
and in my mind this is why i haven't
talked about bitcoin because i spend
more time with companies because
many companies it's very different
so here's what i mean here's an example
so let's imagine that there's a company
that's going to give us
a hundred dollars every year in we'll
call them
dividends right they're going to pay us
100 every year well
what's that and they're going to pay for
the next 10 years let's say
what's that worth today 100 a year for
10 years
well that's a thousand dollars they're
going to pay to us
would we pay a thousand dollars for that
investment
probably not surely a thousand dollars
today is worth more
than a hundred dollars a year for the
next 10 years that's a you know the
time value of money so it should be we
shouldn't pay a thousand dollars
okay but what if we could buy that
investment not for a thousand but
instead we could pay
eight hundred dollars for it same we're
going to get the same 100
a year for the next 10 years well is
that worth it
maybe we could do some math see what
other investment opportunities we have
out there
but at least now we're considering it
it's certainly a lot better than paying
a thousand dollars for it
okay but now we ask would we pay 1200
for this very same investment 1200 to
receive 100 a year for the next 10 years
and i assume the answer is going to be
no why would we pay 1200
for something that is worth a thousand
dollars in the future
so i assume in this oversimplified
example we're going to decline that
opportunity
but where things shift a bit for
typical investing but specifically for
investing
fomo is when we now introduce that
at the end of the 10 years you can sell
that stock
whatever that stock is worth we don't
know what it's going to be worth
if we paid 1200 well what if you could
sell it for 1200
in 10 years then is it worth it maybe
what if you could sell it for 800 is it
worth it
maybe what if you could sell it for 2
dollars what if you sell it for ten
thousand dollars
well suddenly it becomes much more
interesting that unknown
changes everything and it's that unknown
that
gets people licking their chops and into
fomo investing because what if it does
go to ten thousand dollars
they don't want to miss that potential
now i actually see this a lot
on this channel so i recently did a
video on apple where i analyzed apple
stock and in that video i calculated
uh the fair value of apple stock using
discount free cash flow
now in that i came up with a fair value
for apple stock of 119 bucks
per share so obviously in my mind i want
to buy
apple stock below our calculation of
fair value so below
120 dollars per share now it's no real
surprise but
i started seeing a whole bunch of
comments like all of these
now a lot of these comments focus on the
fact that oh well good luck you screwed
up you'll be you're missing out now
too bad oh well it doesn't doesn't
matter what the fair value is
just jump in and buy but when you look
at a chart of apple this is apple stock
over the past year
and frankly i'm not sure how 119 dollars
per share
is such an unreasonable level it's not
like the stock is at 500 right now
and we're saying it's worth 119. there's
been plenty of drops throughout
just the past year that could easily
drive this stock
back to 119 per share now i did do the
video right about here at the time i was
trading at about 130 dollars per share
and i actually think this is an
excellent illustration
of investing fomo the fear of missing
out that
it's that we would not acknowledge what
the fair value could be for
apple stock and we would just jump in
and buy it no matter what now the flip
side of this is i've also received
comments in the past where somebody
disagrees with my calculation of fair
value maybe they calculate the fair
value of apple and they say you know
what
it's at 130 bucks per share right now
when i did the video back then
and i think it's worth 150 i'm jumping
in to buy it
well that is quite logical that's a
smart move that is the calculation
here's why i think it's worth this much
here's why i'm getting in
you can defend why you're getting
involved in that stock and to me that is
not investing fomo that is actually
much more logical but if we buy this
stock because we don't think it's going
to drop below our calculation of fair
value
or even worse if we don't even make if
we don't even make an attempt to come up
with what the fair value of the stock
could be
well if we're buying it just because we
think the stock will go up with no
logical reason behind it and by the way
the stock has gone up recently is not a
logical reason to predict why it will go
up in the future but if this is why we
buy then this by definition is
fomo investing and this is dangerous
because if the price we pay for a stock
is too high well if the stock market
does correct at some point
and that will inevitably happen at some
point
well it could take us years and years to
to get back to break even
a great example of this is amazon so
amazon is known as one of the best
investments
over the long term and this is the chart
of amazon in the first few years when
they first went public
and they we could see that when they
first went public it was about a dollar
or two per share
and when people talk about this being
one of the best stocks ever
is that we bought all the way down here
but we're not talking about that
we're talking about buying stocks after
they've had
a huge run up and saying they only move
higher they're just going to keep moving
higher
so as an example let's pretend we
analyzed we did a video on uh
amazon stock back at this point in time
and at that time maybe we come up with a
fair value of
30 40 50 per share whatever it is some
point
lower and then just like apple's example
the stock jumps higher
and people are there calling us foolish
and saying we shouldn't be involved in
this thing
you got to jump in and buy it and hold
it and run it up but if we did go ahead
and buy amazon at that point
we know with the benefit of hindsight
that the tech bubble burst
shortly after this well if we fast
forward
to 10 years from that level well
it would take all the way up to the
beginning the lead up to the financial
crisis
before we would even break even with
amazon stock
that's a long long time to be holding a
losing position
assuming that we're going to you know
it's going to go green at some point
now of course i'm sure we can all agree
that where apple is today and where
amazon was
back then they're not comparable and
that's not that's not what i'm trying to
say
the point is that we cannot look at
the recent history and say it's gone up
it will just you know it's going to the
moon
and just ignore the fact it might not be
worth where it's currently trading
so if we bought amazon back at that time
and we thought it was worth less
well that's really on us we're really
getting burnt
if we had decided to wait for it to get
there and everybody was saying it'll
never get back to that price
well it did in fact get to that price
and then our returns would be
significantly better because of that so
going back to apple's stock here
well let's pretend we believe it is
worth 119
per share well the question is at the
current price of 145 per share
why would we pay 145 if we think it's
worth 119
now i've also seen comments like this
this is one of the comments i showed
before
have fun sitting on the sidelines and i
can't help but chuckle to myself when i
see that
because frankly i'm perfectly fine
sitting on the sidelines
because i would be more upset if i
overpaid for a stock that if i did a
calculation of fair value and i got 119
per share and i paid 145 i have a lot of
trouble
justifying why i would do that i'd much
rather
not buy it even if the stock goes to 500
per share
that's not the point this is the reason
i research so many companies
because i have a limited amount of
capital and i want to deploy that
capital
in what i believe to be the best
situation apple might go to 200 300
per share and i might miss out or
it might not we don't know anybody who
says that they do is lying to you
so i think that it makes way more sense
to find the opportunities that we
believe
we can logic out we can explain to
ourselves why we're buying it
at the current price because at the end
of the day i think that one of the most
important parts
to successful long-term buy and hold
investing is that
we don't make poor investment decisions
buying a stock like amazon when amazon
is trading way above a logical
calculation of fair value back in 1999
is setting ourselves up for almost 10
years
of negative returns and that's a huge
that's a huge mistake to jump into
simply because of the possibility of it
going even higher
becoming even more illogically
overvalued so my point is that buy and
hold long-term investing
has withstood the test of time because
we avoid stocks that
can blow up on us and we try to buy good
companies
at reasonable prices so i think it's
crucial that if we catch ourselves
looking to jump into an investment like
a stalker bitcoin or whatever it is
please i think it's very important that
we ask ourselves is
questions like is this a good long-term
investment what
do we think it's worth why do we think
it's worth that
can we buy it for a reasonable price
today less than what it's worth
if we can go through these types of
questions and we believe that this is
still a good investment whatever the
investment is
well then great let's jump in and buy it
but
if we don't then we're better off
looking for a different opportunity
which who knows could be way better
than the current investment that we have
at least over the long run now if you're
not sure how to identify
good long-term buy and hold investments
i actually did a video
where i go through the i call it the art
of finding long-term
of great long-term stocks so if you're
curious perhaps that's the good next
video for you to watch i got a link
right here i got a link in the
description below
and thank you so much for sticking with
me all the way to the end of the video
i really appreciate it thanks and i'll
see in the next video