Bullshift Culprits 1 and 2: FOMO and TINA

Bullshift Culprit #1 FOMO (Fear of Missing Out)

For anyone who has been out of the loop, there are a number of acronyms and memes that have popped up over the past decade that help commentators to capture contemporary zeitgeist.  One of the most popular is FOMO – the Fear Of Missing Out.  The basic idea here is that other people are doing something (having fun, getting rich, cheating the tax man) that others want to get in on.

Getting in on things is all fine and well, provided they are legal.  Many aspects of FOMO are indeed legal and it should be obvious that there are social risks associated with wanting to do things that are not.  The thing to note is that there’s strong social pressure to participate – largely because there is some form of social proof that makes it seem as though everyone else is doing it, too (and getting away with it). If there’s one thing that upwardly-mobile people hate, it’s the notion that they are not ‘keeping up with the Joneses’ when they quite easily could be – if they only did whatever it was the Joneses are doing to give them the status / income / happiness edge they have in the first place.

Of all the possible examples of FOMO, getting rich by playing the stock market may well be the most insidious and the most common.  Anyone with seed money can do it.  No matter how rich or poor you are, if there’s a sense that you can make (say) an “easy 15%” on your money by investing in security X or product Y and that Betty and Bob in marketing both did it (and showed you their quarter end statements to prove it), the pull is often irresistible.  This can sometimes be fodder for something called “greater fool theory.”

Most real investors say “buy low; sell high,” but it needs to be noted that there is a segment of the population that makes money by using the principle of “buy higher; sell higher.” As long as there’s a ‘greater fool’ out there who is prepared to pay even more than the outrageous price you paid for something, you can make money by paying an outrageously high price to begin with.  This is a bit like a game of chicken or musical chairs.  At some point, the market runs out of ‘fools’.  In finance lingo, that’s when the bubble bursts.

Bullshift Culprit #2 TINA (There is No Alternative to Stocks)


Above, we looked at how the Fear Of Missing Out (FOMO) might be contributing to markets being expensive.  That’s not the only plausible behavioural explanation for what’s going on in capital markets these days.  There’s another obvious candidate to explain sky-high valuations: the utter lack of a viable investment alternative.  The acronym that pundits use is TINA: There Is NO Alternative.

As I type this, the ten-year yield on both Canadian and American bonds is less than 1%.  Invest $100 today and you’ll have less than $101 to show for your trouble this time next year.  The problem is simple: people still need to save for their retirement.  They still need to put their kids through school.  The historical needs for financial advice and financial planning have not gone away and the laws of product investment management have not been repealed.  We all need to save and invest – but if bonds pay (quite literally) next to nothing, what are we to do?

As we have all lived through the greatest bond bull market in history, the easy money has been made and all that’s left are the hard decisions about the path forward.  Part of the problem, as mentioned in another blog (see Under Promise and Over Deliver from September 15), is that we’ve all grown accustomed to historical returns that are highly unlikely to be seen again.

It is far more likely that, even though inflation is likely to remain benign (the silver lining), real returns will be in keeping with historical averages at best and, more likely, lower than historical averages due to high valuations going forward.  A traditional 60/40 investor (60% stocks; 40% bonds) can feel reasonably secure when stocks are returning 9% and bonds 4%, but when that 5% spread is shrunk with a lower baseline, people will naturally re-calculate their thinking.

Most people construct portfolios that mirror their risk tolerance.  A historical rerun on a 60/40 portfolio is about 7% (.6 x 9% + .4 x 4% = 7%), but these days, might be closer to 4%.  Even if you decide to make other accommodations, a 7% expected long term return is literally unattainable when the best-performing asset class (equities) only returns 6%.  The current mindset is that bonds are for shmucks and ‘cash is trash’.   I would caution strongly against reverse-engineering your asset mix in order to try to shoehorn your retirement plans into generating the returns you’ve grown accustomed to.  Those days are over.  The sooner you deal with it, the better.

John De Goey, CIM, CFP, FP Canada™ Fellow, is a Portfolio Manager with Toronto-based Wellington-Altus Private Wealth Inc. This blog originally appeared in two instalments on the firm’s “Newswire” site on Oct. 27, 2020 and Nov. 3, 2020 are republished on the Hub with permission.

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