Nvidia Frenzy and the Fear of Missing Out

You may remember the two powerful emotions we guard against in a long-term investment program—fear and greed. These two villains aim to cause you to follow the trend, usually late in the game, and much to your detriment.

When markets have lost ground, fear tells you to sell, probably near the bottom. In fact, past data shows selling activity peaking right at the bottom, which is remarkable but unfortunate. We see a similar pattern on the upside, peak bullishness and buying right at the top, as greed kicks in and gains seem easy until they aren’t.

FOMO is a popular term today. Funny, it employs the word “fear” in a phrase that substitutes for greed—fear of missing out. It sounds like the late 90s—isn’t everyone else getting rich in tech stocks? Aren’t you? Why not?!

The stock of the day is Nvidia, of course. It’s a classic example of a company starting out to do one thing, chips for games, and stumbling into the BIG WIN with AI. I am obviously oversimplifying just a little, but talk about winding up at the right place at the right time, oh my goodness. The fastest chips for the biggest application, Large Language Models. Until another company catches up, they are minting money.

A very good short article in The Wall Street Journal1, provides some historical (hysterical?) context. We have seen this show before. Somehow, in hindsight, it all seems so obvious; we should have known! I particularly like this important point: “The key is to control your counterfactuals.” This refers to the narrative about what might have been, the imaginary alternative to what actually happened.

If you let that imaginary alternative run away with you, it can convince you that you should know things that are usually impossible to know ahead of time, leading to mistakes— potentially devastating mistakes.

Happily, we don’t play this game. As long-term investors with discipline, people who look at the data and human thinking and behavior, we know how this works. We know that owners of broadly diversified equity portfolios are not, in fact, missing out, but have exposure to the Nvidias of the world along with many other companies. We resist the temptation of the imaginary alternative, where we outguess the market and select the right stocks at the right time with enough consistency to come out ahead.

I hope you are all doing well and staying calm in this rather unusual election year. There are many things we cannot control, but some that we can! Be of good cheer.

1. Zweig, Jason. “It’s Nvidia’s Stock Market. You Choose How To Live In It.” The Wall Street Journal, 1
Mar. 2024, www.wsj.com/finance/investing/nvidia-stock-market-f254a7ac.

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