FOMO investing: why chasing market excitement destroys wealth

New research accidentally proves that FOMO investing destroys wealth rather than creating it, offering crucial insights for protecting your financial future.

You know that restaurant everyone's suddenly raving about? The one with impossible reservations and Instagram-worthy dishes? By the time you finally get a table, the food's gone downhill, the service has collapsed under pressure, and you're left wondering what the fuss was about. Financial markets work exactly the same way — and new research accidentally proves it.

University of Colorado economist Yosef Bonaparte has spent two decades tracking what he calls the "Global FOMO Index," built from Google searches for terms like "buy stock," "get rich quick," and "Bitcoin price." His findings should terrify anyone tempted by FOMO investing: when search interest peaks, market returns consistently disappoint. Rather than creating a market timing tool, Bonaparte has inadvertently constructed something far more valuable — a real-time measure of wealth destruction in progress.

When everyone wants in, it may be time to get out

Bonaparte's research reveals a crucial paradox that validates decades of evidence-based investing principles. His Global FOMO Index shows that periods of peak search activity for investment-related terms predict lower returns (1.7-2% decline), reduced volatility (2.02-2.1% drop), and weaker risk-adjusted performance (4% decline in Sharpe ratios). These aren't the hallmarks of opportunity — they're the warning signs of a bubble about to burst.

Consider the implications: when millions of people simultaneously Google "buy stock" and "get rich quick", they're not identifying the next big opportunity. They're documenting their arrival at the party just as the music stops. The restaurant analogy holds perfectly — peak popularity signals peak prices, not peak potential.

"When millions of people simultaneously Google 'buy stock' and 'get rich quick', they're not identifying the next big opportunity — they're documenting their arrival at the party just as the music stops."

This finding aligns with everything we know about investor behaviour from Nobel laureate Daniel Kahneman's research on loss aversion to the Dalbar studies documenting persistent behaviour gaps. When excitement reaches fever pitch, rational decision-making disappears, replaced by the fear of missing out that destroys wealth rather than creating it.

The Google search trap that reveals investment failures

Bonaparte's methodology highlights the fundamental problem with sentiment-based investing strategies. His index combines searches for "FOMO," "buy stock," "get rich quick," "missed out," "trending now," and "Bitcoin price" — terms that capture anxiety rather than insight. The resulting data tells a clear story: search volumes spike exactly when prices peak, not before.

This timing pattern exposes the illusion at the heart of emotional market participation. When your neighbour starts Googling cryptocurrency prices, they're responding to news coverage of Bitcoin's latest surge. When investment forums buzz with "get rich quick" schemes, markets have already moved. The searches measure regret in real-time — millions of investors realising they've missed the initial opportunity and desperately trying to catch up.

The democracy correlation Bonaparte discovered proves equally revealing. His finding that effects are stronger in democratic countries isn't a profound insight into political systems — it's evidence that media-saturated environments amplify destructive herding behaviour.

Social media, 24/7 financial news, and easy trading access create more opportunities for self-harm, not self-enrichment.

What the data actually tells us about market timing

Bonaparte's findings accidentally validate William Sharpe's seminal 1975 research showing that market timers must be accurate 74% of the time to outperform passive investing. But the Global Index reveals something more troubling: when sentiment reaches extremes, even professional investors struggle. The periods of highest search activity coincide with maximum uncertainty and minimum opportunity.

This aligns with decades of research on sentiment indicators. The VIX volatility index, often called the "fear gauge," provides instructive parallels. During the 2008 financial crisis, the VIX peaked at around 80, compared to its historical average of 20. In March 2020, it reached 82 as markets crashed. But these extreme readings didn't predict profitable opportunities — they marked moments of maximum danger for emotional investors.

The pattern repeats across every major market episode. During the dot-com bubble, peak excitement preceded devastating losses. The 2008 housing bubble followed identical dynamics. Each time, sentiment indicators captured the moment when rational analysis gave way to collective delusion.

Bonaparte's democracy variable inadvertently confirms this relationship. Democratic countries don't produce better investment outcomes during episodes — they produce more dramatic wealth destruction because information flows faster and reaches more people simultaneously.

The true cost of emotional investing decisions

The real insight from Bonaparte's research lies not in its market timing potential, but in its documentation of investor self-harm. The periods of peak searching align precisely with moments when investors make their worst decisions: buying after major gains, selling after significant losses, and abandoning proven strategies for speculative alternatives.

Research from Stocktwits analysis reveals the magnitude of this destruction. Over a ten-year period, retail traders following social media sentiment saw nearly 40% declines in the value of stocks they bought, whilst they would have seen 30% increases by holding the stocks they sold. Even more telling: those who claimed to use fundamental analysis actually relied on technical chart-reading 80% of the time.

Professional investors understand this dynamic and exploit it systematically. AI-powered trading strategies now achieve 13.4% annual returns by deliberately trading against retail sentiment. When ordinary investors feel most optimistic, sophisticated players take the opposite position — and profit handsomely from the predictable emotional cycle.

The trap extends beyond individual decisions to structural market changes. As search interest peaks, platforms like Robinhood see surges in account openings and trading activity. This influx of new money creates temporary price inflation, followed by sharp corrections when reality reasserts itself. The late arrivals — those Googling investment terms after prices have already moved — bear the heaviest losses.

This pattern explains why market timing research consistently shows such poor results. John Graham and Campbell Harvey tracked 15,000 market predictions from investment newsletters between 1980 and 1992. By the end of their study, 94.5% of these publications had failed. Their average lifespan was just four years — hardly the foundation for sustainable wealth creation.

How to protect yourself from destructive investment mistakes

Understanding Bonaparte's findings provides powerful tools for defensive investing. The Global Index works brilliantly — just not as intended. Rather than signalling buying opportunities, it identifies moments when investors should strengthen their defences against emotional decision-making.

The evidence-based response starts with pre-commitment strategies. Written investment policy statements, signed during calm periods, provide crucial anchors when sentiment storms hit. Automatic rebalancing removes emotion from timing decisions entirely. These aren't exotic techniques—they're basic protections that every serious investor should implement.

Consider the alternative: "speculation funds" representing 0.5-1% of your portfolio. This approach satisfies speculative urges without jeopardising long-term goals. When the next cryptocurrency surge or meme stock mania arrives, you can participate modestly rather than making wholesale portfolio changes based on excitement.

Historical perspective provides another crucial defence. Peter Lynch's research showed that even perfect market timing — investing at the exact market bottom every year for 30 years—only improved returns by 0.7% annually compared to regular monthly investing. The Charles Schwab study confirmed this finding: investors who simply bought at the start of each year achieved nearly identical results to perfect market timers, whilst those who waited in cash earned nothing.

This doesn't mean ignoring new developments entirely. Evidence-based investors can acknowledge innovation whilst maintaining discipline. If something genuinely transformative emerges and survives seven to eight years, consider modest exposure. But recognise this as diversification, not speculation.

The key insight from sentiment research: when everyone's talking about an investment opportunity, the opportunity has likely passed. When your search history shows "Bitcoin price" or "buy stock," you're probably already too late. Successful investing requires thinking independently whilst acting collectively — buying broad market exposure when others are fixated on individual opportunities.

Communication frameworks matter enormously for families and advisers. Rather than dismissing emotions entirely, acknowledge the feelings whilst redirecting the energy. The real fear isn't missing gains — it's missing security. Evidence-based portfolios provide something far more valuable than excitement: the reasonable expectation of long-term wealth growth without the emotional roller coaster of speculation.

The bottom line on sentiment-driven strategies

Bonaparte's Global Index accidentally validates everything evidence-based investors already know about market behaviour. Sentiment indicators don't predict opportunities — they document moments when wealth destruction reaches its peak. The research provides compelling evidence that excitement and returns move in opposite directions, whilst rational boring strategies consistently outperform emotional alternatives.

The restaurant analogy captures this perfectly: by the time everyone's talking about the hot new place, the experience has likely deteriorated under pressure. Similarly, when investment themes achieve widespread popularity, the underlying opportunities have usually evaporated. The late arrivals—those drawn by social media buzz and search engine queries — face inflated prices and diminished prospects.

This doesn't condemn new investors to permanent disadvantage. The solution lies not in better sentiment analysis or more sophisticated timing models, but in adopting proven strategies that work regardless of market emotions. Broad diversification, low costs, disciplined rebalancing, and long-term thinking consistently deliver better outcomes than chasing popular investments.

FOMO investing promises quick riches but delivers predictable losses. Bonaparte's research, despite its author's intentions, provides compelling evidence that when search interest peaks for investment terms, returns disappear. The data confirms what evidence-based investors have long understood: wealth creation requires patience, not excitement — and the best opportunities rarely come with fanfare.

References

Bonaparte, Y. (2025). Global FOMO: The Pulse of Financial Markets Worldwide. University of Colorado at Denver.

Dalbar Inc. (Annual). Quantitative Analysis of Investor Behavior.

Graham, J., & Harvey, C. (1996). Market timing ability and volatility implied in investment newsletter asset allocation recommendations. Journal of Financial Economics, 42(3), 397-421.

Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263-291.

Lynch, P. (1995). Beating the street. Simon & Schuster.

Sharpe, W.F. (1975). Likely gains from market timing. Financial Analysts Journal, 31(2), 60-69.

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