Fight FOMO: Building Emotional Discipline in Investing

How to Conquer Emotional Biases and Invest with Conviction

In a world where market news flashes across our screens 24/7, it’s easy to feel like you’re missing out on the next big opportunity. The “Fear of Missing Out,” or FOMO, is a powerful psychological bias that has driven countless investors to chase yield, follow the herd, or abandon sound strategies. But as we’ve seen during recent market corrections, emotional discipline is the cornerstone of successful investing. This article explores how FOMO and other biases can derail your portfolio, actionable steps to overcome them, and why I started Safe Harbor Stocks to help investors stay grounded.

Yield Chasing and the Legacy of Easy Money

Years of low interest rates created a dangerous environment for investors. The search for yield led many to venture into high-risk assets, often with minimal margin of safety. From speculative tech stocks to unproven cryptocurrencies, the allure of quick gains made it easy to ignore fundamentals. Back in 2017, I joined an investment group of Accredited Investors, for the purpose of allocating to private real estate debt funds to enhance my own cash yields, and I saw in action how FOMO can take hold.

Today’s market correction is a stark reminder that chasing returns without discipline can result in painful losses.

At Safe Harbor Stocks, we aim to identify individual companies with:

• Durable growth

• Strong fundamentals

• Limited downside

These three focal points represent a stark contrast to the groupthink that pervades markets during speculative manias. And, yes, I would call the last several years a speculative mania, but only in certain facets of the market. There are always good opportunities, but they likely aren’t the ones that flash onto your news feed. You need to search for them and disengage from other temptation.

The Power of Groupthink and Herd Mentality

Remembers investors are social creatures, and herd mentality can be hard to resist. When everyone is buying into a hot stock or trend, the pressure to follow the crowd is immense. Unfortunately, this behavior often leads to bubbles, like the dot-com era or meme stock frenzy, where fundamentals take a backseat to hype.

Instead, it pays to look inward rather than outward. Emotional discipline involves breaking free from the noise and making decisions based on your unique financial goals and risk tolerance.

I can almost anticipate the rebuttal that AI will reduce these biases but remember we as human beings are pulling the strings behind this technology - and we will always have the ability to override it. Imagine 10 years from now riding in your new fully autonomous vehicle becoming frustrated with the car not passing or speeding up to arrive at your destination. People will likely override this technology if at all possible.

Recognizing and Overcoming Key Psychological Biases

I could write a single article about all the psychological biases that challenge us as investors on a daily basis. And perhaps I will write an article on them at some point. Importantly, none of us will ever shake them. It’s simple to understand yet not easy to put into practice. And it is a journey without a destination, meaning so long as you are human you will need to combat your biases each and every day. Here are three of them:

FOMO

Fear of missing out is one of the most common biases. It can drive investors to buy at the top of the market, chasing trends rather than evaluating intrinsic value. Perfect example is the chase of the Magnificent 7 stocks. Case in point below:

Sunk Cost Fallacy

The sunk cost fallacy occurs when investors cling to losing positions, believing they must hold on to “get their money back.” Instead, it’s crucial to reassess the investment’s future potential rather than dwelling on past losses. This is “water under the bridge” so to speak. Focus on looking forward here not backward. You want to look at the margin and your opportunity cost. If you can re-allocate that capital to another company with better appreciation potential, just do it.

It is just water under the bridge

Confirmation Bias

Investors often seek out information that reinforces their existing beliefs, ignoring evidence to the contrary. This can lead to overconfidence and poor decision-making. Be mindful of each piece of information you allow your mind to process. Question it. Are you accepting it for its convincing content or is it the product of a search that simply seeks validation of your own holding.

Fighting FOMO: Practical Steps for Emotional Discipline

This can be another endless list but here are a few actionable steps I practice fighting the FOMO and stay ground in a more realistic investing mindset.

1. Review Companies Objectively Before Price Charts

When analyzing a stock, start with the business fundamentals. Evaluate its competitive position, cash flow, and long-term prospects before glancing at its historical price chart. Fundamental data apps like TIKR and Fast Graphs actually have a feature to toggle off the price chart or market price while conducting your analysis. This helps prevent anchoring your expectations to prior highs or lows.

2. Read SEC Filings First

Before diving into management’s earnings calls or press releases, review the company’s SEC filings, such as the 10-K or 10-Q. These documents provide unfiltered insights into the business and its financial health, free from marketing spin. Navigate to the company’s Investor Relations portal or SEC’s Edgar itself to view the company’s SEC filings.

3. Use the 1-Hour or 1-Day Rule

I learned this one from helping my daughter manage her impulse to buy stuff. If you feel an emotional urge to make a trade, wait. Take an hour or even a full day to reflect. This cooling-off period often reveals whether the decision was driven by reason or impulse.

4. Build a Framework for Decision-Making

Create a checklist or framework for evaluating investments. For example, I use the following high-level framework:

• Margin of Safety: Is the stock trading at a discount to intrinsic value?

• Growth Potential: Are there clear durable/sustainable drivers for future earnings or cash flow growth?

• Risks: What are the major downside scenarios?

5. Reflect on Past Mistakes

Keep an investing journal to document your decisions and their outcomes. Over time, patterns may emerge, helping you identify and address emotional tendencies. Guess what!? The initial reason I started this newsletter, outside finding other investors to interact with, is to serve as my personal investment journal. And making it public actually helps with two important factors:

1. Accountability: I tend to hold myself more accountable if others are involved. This is similar to why some of us find it easier to continue an exercise regimen in the gym or in a group class.

2. Better Due Diligence: I conduct deeper and more thorough due diligence on my investments when I need to report my thoughts to others. I can account for more than one instance, in the less than two months of writing here, where I discovered information about the company that I otherwise would have missed had I not been writing for you - my fellow investors.

Why Safe Harbor Stocks Was Created

The volatility and emotion of today’s markets exemplify why I founded Safe Harbor Stocks. My goal is to help investors focus on stocks with strong fundamentals and a margin of safety. My first write-up on Marex, a company that combines growth potential with resilience, exemplifies this. You can read that write-up here:

Marex Group PLC (MRX)

By emphasizing research, education, and emotional discipline, we can navigate market corrections with confidence and avoid the pitfalls of FOMO.

Conclusion

Investing is as much a psychological game as it is a financial one. In fact, I like to say investing is 90% emotional / psychological. And as Buffet or Munger would say:

“Investing is simple but not easy.”

FOMO, sunk cost fallacies, and confirmation bias are powerful forces, but they can be overcome with awareness and discipline. By focusing on fundamentals, building a decision-making framework, and reflecting on past mistakes, you can separate emotion from strategy. Remember, the key to long-term success isn’t chasing trends—it’s fighting FOMO and staying grounded in your convictions.

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Disclosure: This information is provided for informational purposes only and should not be considered a solicitation or recommendation to buy or sell any securities. The author or entity providing this information may hold positions in the securities discussed. This is not investment advice.