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The Fear Of Missing Out

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Includes: DDM, DIA, DOG, DXD, EEH, EPS, EQL, FEX, FWDD, HUSV, IVV, IWL, IWM, JHML, JKD, OTPIX, PSQ, QID, QLD, QQEW, QQQ, QQQE, QQXT, RSP, RWM, RYARX, RYRSX, SCAP, SCHX, SDOW, SDS, SFLA, SH, SMLL, SPDN, SPLX, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU, SPXV, SPY, SQQQ, SRTY, SSO, SYE, TNA, TQQQ, TWM, TZA, UDOW, UDPIX, UPRO, URTY, UWM, VFINX, VOO, VTWO, VV
by: Lawrence Fuller
Summary

Do you have the fear of missing out on all-time highs?

Don't let market performance dictate your investment strategy.

Stay focused on your investment objectives rather than competing with the benchmark.

The sign posts say we are closer to a topping process than a significant new leg up in this bull market.

Every bull market has an expiration date, which is why last week's magazine cover from Barron's reminded me to remain defensive. This cover encapsulates the kind of unbridled optimism and disregard for risk that I have seen near previous market tops. It doesn't tell us when a top is in place, because market tops are processes rather than events. It doesn't tell us when a bear market begins. We may be in the middle of a bear-market rally right now, with the all-time high achieved last September behind us, and the bear-market lows still ahead. Or we may achieve new all-time highs in the weeks or months ahead, setting the stage for another leg of the current bull market. No one knows for sure.

What investors must do is lean towards what they view as the most probable outcome as opposed to being all in or all out and hedge exposure if incorrect in their assessment. That's what portfolio management is all about. The outlook I have been leaning towards is that we are in the process of a major market top for this economic cycle, and in my experience, the "fear of missing out," or FOMO, has always coincided with that process.

FOMO

I will admit that over the past couple of weeks, I have had a touch of FOMO. It's perfectly normal when markets make massive uninterrupted moves upward over short periods of time, and we have cash sitting idle on the sidelines. Why am I not all in dammit! What can I buy today? This fear of missing out is the exact opposite of the fear of being wiped out, or FOWO, which most investors experienced last December.

These fears continually lead the majority of investors to make what look like bad decisions in hindsight, which can be seen below in the money flows into and out of stock funds. What did investors see in March, leading to the largest inflows in a year, that they didn't see last December?

Investing is not a competition unless you consider yourself the competitor. Overcoming these fears, staying disciplined and consistently following your investment strategy are the keys to long-term success. I contend that the long-term view of the market still looks dubious at best, as the S&P 500 tests the upper end of the trading range it has held over the past 15 months. Furthermore, the fundamentals that support valuations have been steadily deteriorating, which doesn't bode well for a break-out to new all-time highs.

Still, the fear of not being fully invested should we achieve new all-time highs can overwhelm the most experienced of investors. This is why I shared the Barron's cover, which like a pungent smelling salt brought me back to my senses. Stay focused and stay disciplined. I am currently exceeding my annualized long-term return objective on a year-to-date basis, and I am doing so taking far less risk than I would have otherwise assumed I would need to take. That is what I need to focus on.

While I remain on defense, which dictates elevated cash levels in the portfolios that comprise my asset allocation, I can always find attractive investment opportunities that I believe are actionable today. Yet I must look at those investment opportunities in the context of the overall market backdrop, which does not look attractive. Therefore, I will continue to hedge any increase in exposure to higher-quality and lower-valued investments with strategies that will appreciate from the decline in lower-quality and higher-valued assets.

Stay disciplined and stay focused!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The Portfolio Architect is published as an information service. Lawrence Fuller, the publisher, is also the Managing Director of Fuller Asset Management, a Registered Investment Advisor, which is unaffiliated with this Marketplace service. While this service includes opinions about buying, selling and holding a wide range of securities, the publisher is not acting as an investment adviser or providing advice or recommendations to any particular subscriber. Any investment recommended should be made only after consulting with your investment advisor or completing your own due diligence. There are risks involved with investing including loss of principal. Mr. Fuller makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made. There is no guarantee that the goals or the strategies discussed by will be met.