If you want to get a big case of FOMO (i.e. fear of missing out), all you have to do is sit down and read some financial news. You’ll kick yourself at all the big investments you’ve missed out on over the years. Bitcoin to $100,000! Gamestop making people millionaires! Teslanaires balling out! And now we’ve got NFTs hitting the scene – that’s non-fungible tokens for those of you that aren’t hip to the game.
Unfortunately, I’ve missed out on every big investment ever. Sometimes it’s a new technology that I don’t understand and probably am not smart enough to figure out anyway. Other times, it’s a stock that I didn’t pick when someone smarter than me simply knew that this was the stock to get rich from based on whatever technical analysis they did.
After many years of never getting in on these big investments, I’ve come to one solid conclusion – there are a lot of people out there who have no idea what they’re doing but think they do. But there are also a lot of people out there that are smarter than me and know things I don’t know. Some of them get really rich because of how much smarter they are compared to the rest of us.
Truth be told, I really don’t know that much about investing. I have no idea how to look at a stock and figure out whether it’s good or not. I definitely don’t know how to look at a cryptocurrency and figure out if I should put money into it. And I have no clue what the deal is with NFTs. I’m willing to bet that you’re like me too – just one of the regular people out there missing out on all these big investments because you’re not smart enough to know about all the best things to invest in.
Here’s the thing though. Even though there are a lot of smart people out there making money from investments that we don’t understand, it’s actually totally okay. Sure, it’s great if you can figure out what investment is going to blow up before it happens. But we don’t actually need all of that to be a successful investor.
In the world of investing, it’s okay to not be that smart.
The Power Of FOMO
There’s a common misconception about investing and building wealth that I think seriously hurts people. We go into investing thinking of it as something where we have to pick a winner. We tell ourselves we need to find that one investment that will make us our fortune. And if we can just find that one investment, we’ll be rich and set for life.
This is exactly what I thought investing was all about back when I was in college. I’d seen all the stories of people becoming millionaires because they invested in Microsoft back at the beginning. So to me, successful investing was about finding the next Microsoft or Apple or Amazon or whatever other stock was blowing up. But how was I supposed to find that next big thing?
This is where FOMO comes into play and why some people get suckered into what I think are bad investments for most people. A random YouTuber or some Tik Tok star makes a name for themselves by showing how rich they are and how you can get rich too. Then they pitch you on their course that will show you how to make 1000% returns every year!
Charlie Munger had a great takedown of these types of gurus that do this type of selling. If these people are making so much money from their amazing 300% annual return strategy, then why do they need to sell courses?
I think this quote from Charlie Munger is particularly enlightening:
People seek out the weaknesses of their fellow man and take advantage. And you have to get wise enough so you avoid them all.
It’s that FOMO though. We get bombarded with things that make us think investing is a game where you need to outsmart the competition and hit that big home run. I’m sure there are some smart people out there that win at this game. But I know I’m not one of them – I’m not smart enough for that.
You Don’t Need To Be Smart, You Only Need To Be Average
There are a lot of smart people out there. And maybe they have figured out the secret to making money investing in stocks and weird investments. Maybe they know something about Bitcoin or NFTs or whatever the next Gamestop is that I’m just not smart enough to understand. I can accept that they probably know more about these types of investments than I do.
The beauty of investing, however, is that you don’t actually have to be smart to do it well. You don’t even need to try to do better than most. Instead, you can accept that you don’t know that much and aim for average.
There are a few things to think about here. First, when it comes to investing, aiming for average paradoxically means you’re more likely to end up above average. Countless studies show that simply investing in low-cost index funds that match the market does better than the vast majority of active investors.
The second is thinking about what we actually need to do to build wealth. The truth is, we don’t need 300% returns every year like many people think they do. All we really need is enough. That means enough money invested, enough time to let our money grow, and enough consistency so that we have more money working for us.
So think about what you really need. Maybe it’s $1 million? $2 million? And when do you need to have that money? Whatever it is, most likely, you don’t need to get it by tomorrow (it’d be nice of course, but you don’t need to).
I sound like I’m no fun, and maybe I am just a grump, fun-killer. If you want, go ahead and take a small amount of your money for play money. Maybe you find it fun. You can go buy a little bit of Bitcoin if you want. Investing apps like M1 Finance let you buy fractional shares of stock, so you can do that if you want to get in on some of the latest stock. And at least it gives you something in the game so that you don’t feel left out.
But as an investing strategy, unless you’re really smart and really lucky, you’re probably not going to be one of the elite investors in the world.
You’re Not As Smart As Those Smart People – And That’s Okay
There are people out there reading this that know that Bitcoin and NFTs are going to make them a bunch of money. Other people know that a particular stock is going to be the next Gamestop. These people are going to make a lot of money if they get it right. But just as many people are going to lose money when they get it wrong too.
I’m probably not going to be either of these people. I know that I simply don’t know enough to figure out what the next big stock is or what the next cutting-edge investment vehicle is.
But you know something. That’s totally okay. I don’t need to do all of that crazy investing in order to get to where I’m going. And I don’t have to be smart to save money, invest for the long term, and end up with a lot of money later on.
So you can let those smart people keep doing what it is they’re doing. Maybe some of them are getting lucky. Or maybe some of them know something you don’t know. But that’s okay. You don’t need what it is they know to be a successful investor.
How refreshingly honest – fortunately the simple ways are almost always the most optimal.
And humility is always in fashion. Good one Mr. Panther.
Financial Panther says
I really like today’s post. There’s a constant bombardment of people saying they are making quick fortunes in today’s market. Makes you feel like your slow and steady growth strategy is crap. The ones losing their shirts never post. Slow and steady works for me!
Financial Panther says
It’s human nature I think – a lot of us just want to get to the end without going through the process first. I think I’ve learned that most anything in life comes from slogging through the beginning.
I lost 5K in General Motors during the 2008 meltdown (which was caused by loose lending policies endorsed by the government), I lost $45,000 in ATPG when the Gulf was shut down by the government in 2012 after the oil rig disaster, and finally I lost $44,000 in MRRL in 2020 when the government shut down everything for the virus and the stock market crashed!! Lessons I learned FINALLY: Single stocks SUCK and the government can be counted on to screw everything up to the maximum extent possible!
Accidentally Retired says
100%. I have become convinced that simplicity is the answer to investing. Index funds achieve that goal and are low cost. Sure, could you be leaving some money on the table? Yes…but it doesn’t matter, because Low Cost Index Funds will help you to achieve your goals no matter what they are. Anything fancier and you are just adding to your level of stress and that can lead to poor decision making.
Financial Panther says
Exactly right. Would it be nice to hit it big with a crypto or some individual stock? Sure would. But I don’t “need” it to build wealth via investing.
Jean Rowley says
As a recently retired higher ed Math teacher, I always told my students that the compound interest formula will change your life. It’s enabled me to retire early, yippee!
Thanks for the good article Kevin.
Financial Panther says
Compound interest is definitely life-changing. It’s just so slow to start!
Jean Rowley says
Yes indeed. When you’re my age, you really notice the changes!
Mrs. FCB says
Totally agree. Most of us have way too much going on in our lives to really get as smart on individual investments as we’d need to be to be crazy successful. I generally figure that by the time anything is making enough news that I’ve heard about it, there’s a pretty good chance that the big money has already been made. Every now and then I do see an article about somebody who is in debt up to their eyeballs because they speculated on this kind of stuff. And of course those articles are always super sympathetic and imply that these people didn’t make their own stupid choices. What there are almost never articles about, except on blogs, are the people who went the boring index fund route and did very well for themselves. If it wasn’t so sad it would be hilarious.
Dividend Power says
There always people smarter than me in the market. That is why I follow a low and steady strategy.