Investor Minute
When the Fear of Missing Out Causes You to Miss Out
According to the American Heritage Idioms Dictionary, William Camden was the first to record the saying, “The early bird gets the worm.” He included it in his 1605 edition of English proverbs. Its straightforward meaning is that the person who arrives or acts first is more likely to get what he wants.
It’s been a guiding principle for anyone seeking something that is scarce and is also being sought by others. So, whether you want treasures at an estate sale, a cheap TV on Black Friday, or Taylor Swift tickets, you better show up early.
But like any proverb, “The early bird gets the worm,” has its limitations. Being the first to market with a product does not necessarily mean that you will own the segment. Apple’s category-dominating iPod came several years after other companies had already introduced MP3 players. And in investing, many “ground floor” opportunities end up losing money.
In fact, sometimes it pays not to be the early bird.
Legendary ventriloquist Edgar Bergen is credited with saying, “The early bird gets the worm, but the second mouse gets the cheese.” It’s the idea that rushing in to be ahead of everyone else can sometimes spell disaster.
The first mouse who comes upon a trap baited with a chunk of cheese sees only an opportunity to gain something he wants. But he’s missing important information—information that becomes available only when he’s sprung the trap.
It’s the second mouse, the one who doesn’t immediately take every opportunity at face value, who benefits from the first mouse’s failure.
Berkshire Hathaway CEO Warren Buffett seems to relish his role as second mouse. In a recent shareholders meeting he said, “What gives you opportunities is other people doing dumb things.” He added that many investors, some of them big, are constantly trying to outsmart each other. Buffett adds that this “game” is focused almost entirely on immediate profit. This short-term focus can end up leaving much more opportunity for those who are in it for the long run.
“The world is overwhelmingly short-term focused,” said Buffett. “I mean that it is a world that is made to order for anybody that’s trying to think about what you should do that should work over five or ten or twenty years.”
The powerful emotion that drives the Fear Of Missing Out (FOMO) is known as aversion to losing out on something you think you should have been entitled to. It can be difficult to ignore. But, when you realize that the worm the early birds are in such a hurry to get may not be at all what they expect, the urge to rush along with them goes away.
As a prudent investor whose goal is not to get rich quick, but rather to grow your wealth prudently, your time horizon is not limited to next week or even next quarter. You want to pursue actions that have the best chance of resulting in success over the long-term. Having a diverse strategy and the help of a trusted advisor can help you avoid the futile pursuit of trying to invest in the next big thing. Click here to schedule your free call with me.