Is Fomo the new greed to invest?

If investors insist on coordinating their movements on the stock markets, Warren Buffett said almost 20 years ago, should they be anxious when others are greedy and only greedily when others are anxious.

It is good contrary stuff. And the time-honored representation of markets in the permanent push pull handle of these two animal spirits has a permanent attraction because (apart from nuances and reserved), they actually explain a lot of market psychology quite properly. The difficulty arises as now when greed and fear begin to define yourself as the same.

When analyzing the FTX collapse-and a number of other recent debacles, which seem to be ominously comparable to phenomena of the era of the relaxed money-the fear of missing something (FOMO) has repeatedly emphasized as the decisive part of the investment structure before. Fear, in this use of the word and in the context of the FTX and the wider crypto upswing, created something that looked very much after irrational exuberance. This exuberant, in turn, fueled something that was very similar from the market center as the greed during their regular stays at the wheel.

As it says in the FOMO narrative, investment money (much of which under the patronage of large, apparently respectable funds) collects collectively in certain assets (in many cases with minimal care), not because it absolutely believes in the underlying chance, but because the rewards are presented as unmistakable and the consequences of delay or skepticism are somehow frightening.

The idea is not new, even if it is acronym. Similar thinking processes were already in previous crises. In 2007, Chuck Prince from Citi, as is well known, emphasized the need to dance as long as the music played: a freely chosen pleasure that is presented as an undeniable obligation.

Is the current version of FOMO only camouflaged greed? It is tempting to believe or at least come to the conclusion that the word "fear" describes a rather arbitrary and easy to overcome fear than, for example, fear of loss, value destruction or worse. The representation of FOMO as a real fear requires evidence that there is a certain price to pay if you miss something (as business, for example, experienced in panic purchases that are triggered by a public alarm). Self -allegations because of a missed gold pit or the anger of a dissatisfied Investor do not quite count.

Over the past half decade of technology-centered investments, Masayoshi Sons softbank was leading to refrain from certain investors a more legitimate series of FOMO concerns. When the first of his vision was found in 2017, the 100 billion dollar vehicle was expressly designed to create a new genre of technology investments.

It did (or planned) by not only using its scale to identify potential winners, but also to shower them with enough funds to ensure that they would be likely to be according to key figures such as the market share. This implicit guarantee of dominance, as faulty, indicated a sound that would find Nachhall: If it is not about prospects, but about safe things, then Fomo is not greedy, but wise.

Since Tech and Crypto Fomo are now in the floating, a much larger and more complex version is now emerging in China that could dominate corporate and financial investments next year. Several fund managers indicate to position themselves for a short-term “FOMO event”. A relatively fast reopening of China or a sharp loosening of the zero-covid rules is a change that cannot afford a global or concentrated investor on Asia. The frying rush could rise very quickly.

But long-term Fomo trade is related to geopolitics and with the way the US and Chinese industrial policy have moved away so far that a form of decoupling appears more inevitable. Behind the rhetoric of the US Chips Act and the ambitions "Made in China" are geopolitical shifts that finally more and more companies - in the USA, Europe, Japan, South Korea and elsewhere - could force this to make a kind of choice between the two blocks. In some cases, this could be done in the form of redesigned supply chains and other “friendshoring” investments in order to enable two-track production and a two-track sales.

For others, there can be serious pressure to rethink at all in China. And the company manager and their investors should perhaps keep in mind that there could be good reasons to miss the world's largest engine for the growth of gross domestic product. This will really give Fomo the "F": the question is whether fear is strong enough so that companies can push back before it happens.

leo.lewis@ft.com