Markets are hot. The S&P 500 sits near record highs. Venture capital funding is higher than ever before.
As hot stocks rocket upward and the best venture deals move fast, a specter is haunting investors — the specter of FOMO.
Fear of missing out has investors piling into the stocks of fraudulent companies like Nikola before they miss the rally. FOMO has venture firms writing giant checks without even the most cursory due diligence, like seeing the books or talking to customers.
This fear is the worst enemy of investors. Because we’re afraid of missing the next hot company, we gradually compromise all our standards.
Well, the price isn’t that high. This deal is moving too fast to look at the books! Surely, if so many other big names want in on this opportunity, it must be legit.
But it’s during boom times like this that frauds can hide in plain sight. And their favorite tactic to reel in suckers is to make you afraid you’re going to miss out on the next big thing.
Adam Neumann at WeWork was a master of using FOMO to vacuum up capital without diligence or oversight. Many of those investors soon lost huge sums.
Elizabeth Holmes of Theranos got giant checks from investors without them ever looking too deeply into the technology. What if they had had a team of Ph.D’s look at the device? They would have probably realized it didn’t work and would’ve saved themselves hundreds of millions of dollars.
But they never did.
And why should they? Holmes was on the cover of Forbes, for heaven’s sake! It must be real, right?
Well, we know how that turned out. If we want to avoid investing in the next Theranos, WeWork or Nikola, we have to maintain our standards.
Find out revenues. See customer contracts. Evaluate the technology.
And we need to do more diligence in a hot market, not less.
It’s hard to defraud people in a bear market. In a down market, even good stocks find few buyers. Even the strongest startups struggle to raise money.
In a hot market, it’s much easier to conceal fraud beneath thick layers of hype with a yummy FOMO topping.
But think before you take a bite.
More on markets:
If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog!
Save Money on Stuff I Use:
You already shop on Amazon. Why not save $100?
If you’re approved for this card, you get a $100 Amazon gift card. You also get up to 5% back on Amazon and Whole Foods purchases, 2% on restaurants/gas stations/cell phone bills, and 1% everywhere else.
Best of all: No fee!
This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.
If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.
The only place I buy vitamins and supplements. I recently placed an order and received it in less than 48 hours with free shipping! I compared the prices and they were lower than Amazon. I also love how they test a lot of the vitamins so that you know you’re getting what the label says. This isn’t always the case with supplements.
Use this link to save 5%!
My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.