If buyers insist on attempting to time their strikes in inventory markets, stated Warren Buffett almost 20 years ago, they need to be fearful when others are grasping, and grasping solely when others are fearful.
It’s good contrarian stuff. And the time-honoured depiction of markets within the everlasting push-pull grip of those two animal spirits has a permanent enchantment as a result of (nuance and caveats apart) it does really clarify a number of market psychology fairly neatly. The problem arises, as now, when greed and concern begin defining themselves as the identical factor.
Within the parsing of the FTX collapse — and of a string of different current debacles that appear ominously comparable as phenomena of the free cash period — concern of lacking out (Fomo) has repeatedly emerged because the important ingredient within the funding build-up earlier than the autumn. Worry, on this utilization of the phrase and within the context of the FTX and wider crypto run-up, was creating one thing that regarded an terrible lot like irrational exuberance. This exuberance, in flip, was fuelling one thing that behaved from a market standpoint an terrible lot like greed does throughout its periodic stints on the wheel.
Because the Fomo narrative has it, funding cash (a lot of it underneath the auspices of huge, seemingly respectable funds) thunders collectively into explicit property (in lots of circumstances, with minimal due diligence) not as a result of it essentially believes within the underlying alternative however as a result of the rewards are introduced as unmissable and the implications of delay or scepticism are someway scary.
The concept will not be novel, even when the acronym is. Related thought processes have featured earlier than in earlier crises. In 2007, Citi’s Chuck Prince famously harassed the necessity to hold dancing so long as the music was taking part in: a freely chosen indulgence introduced as an unquestionable obligation.
So is the present model of Fomo simply greed in disguise? It’s tempting to assume so or, on the very least, conclude that the phrase “concern” right here describes a extra discretionary and simply surmountable dread than, say, the concern of loss, worth destruction or worse. The casting of Fomo as a real concern calls for proof that there’s some value to be paid for lacking out (of the kind retailers expertise, for instance, throughout panic-buying prompted by public alarm). Self-recrimination for a bonanza skipped, or the wrath of a dissatisfied investor, don’t fairly depend.
In the course of the previous half decade of tech-centric funding, nevertheless, Masayoshi Son’s SoftBank has led the best way in instilling a extra legit set of Fomo issues for sure buyers. When the primary of his Imaginative and prescient Funds launched in 2017, the $100bn automobile was explicitly designed to create a brand new style of tech funding.
It did this (or deliberate to) by utilizing its scale not simply to establish potential winners however to bathe them with sufficient funding to make sure that, on metrics akin to market share, they most likely can be. This implied assure of dominance, nevertheless flawed, set a tone that might resonate: if funding will not be about prospects however certain issues, then Fomo will not be grasping however sensible.
With tech and crypto Fomo now in some limbo, a a lot bigger and extra advanced model now sits on the horizon in China, and will dominate company and monetary funding subsequent yr. A superb variety of fund managers say they’re already positioning themselves for a short-term “Fomo occasion”. A comparatively fast reopening of China or a pointy leisure of zero-Covid guidelines is a change that no world or Asia-focused investor can afford to overlook. The feeding frenzy may ramp up very swiftly.
However the longer-term Fomo commerce pertains to geopolitics, and to the best way through which US and Chinese language industrial insurance policies have set themselves sufficiently at odds with each other to make some type of decoupling look extra inevitable. Behind the rhetoric of the US Chips Act and the Made in China ambitions are geopolitical shifts that might ultimately oblige increasingly firms — within the US, Europe, Japan, South Korea and elsewhere — to make some form of selection between the 2 blocs. In some circumstances, this would possibly take the type of redesigned provide chains and different “friendshoring” investments to permit dual-track manufacturing and gross sales.
For others, although, there could also be severe strain to rethink being in China in any respect. And enterprise leaders and their buyers ought to maybe take into account that there could also be legitimate causes to overlook out on the world’s biggest gross home product development engine. This, really, will put the “f” in Fomo: the query is whether or not the concern is powerful sufficient for firms to push again earlier than it occurs.