FOMO vs. Fundamentals: When Hype Meets Reality in Investing

FOMO is powerful—and expensive. In this episode, we explore how fear of missing out shapes perception, fuels mispricing, and distracts from the real issue: who captures the value, and at what price?

Mary MacNamara

Hello everybody, and welcome to the Cents of Security Podcast. Today we’re discussing FOMO, Fear of Missing Out versus fundamentals and investing. James Yendrey of InvestMentor^SM is joining us today. Welcome, James. How are you?

James Yendrey

I am doing good, Mary, yourself?

Mary MacNamara

I’m doing great. So, what is FOMO in investing and why does it feel more intense today with social media, Reddit, and instant trades than in past market cycles?

James Yendrey

So, FOMO is really the feeling that everybody else is getting ahead or getting rich without you, more or less leaving you behind, and you’re playing catch up. In a world where everything is instantaneous and things on Instagram or TikTok when it’s more or less presenting as like a highlight reel.

It’s really hard to take yourself out of that situation and realize that they’re not always really there. And so, you start feeling like you have to keep up with the Joneses and you start, you really start feel further behind than where what you actually are.

Mary MacNamara

So, we hear “invest in fundamentals, not emotions” all the time. In simple terms, what are the fundamentals and why are they so easy to ignore when prices are ripping higher?

James Yendrey

Fundamentals are basically the underpinnings of a business, right? So, you think of how much does a company make? How fast is it growing? Is it a durable growth model? The problem with fundamentals in this FOMO and digital era is that they move slowly and prices don’t. So, when a stock is ripping 30% in a month, and your brain just like completely decouples, and you’re like, why wasn’t I just in that stock?

And you’re, you completely missed the mark whenever it comes to fundamentals versus FOMO because now, you’re really focused on that 30% rather than the overall structure and it really screams louder to us because emotion is a lot. We fill it more intensely than we do logic where fundamentals are based in ground in logic.

And FOMO is that is in emotion.

Mary MacNamara

Yeah, it’s like during COVID, remember the whole toilet paper scare, right? Are we going to, are we going to have enough toilet paper? And it’s you would go to the market no matter what, get more toilet paper. And it was like, yeah, but at the end there was enough, right? We didn’t have to worry about it.

James Yendrey

Hurricanes were the same way in the south. Like you, you had all, you had everybody trying to buy up all the toilet paper everywhere.

Mary MacNamara

The toilet paper. So, a lot of AI stocks have seen significant gains, Nvidia crossing 3 trillion, anything labeled “AI” seems to be surging in popularity. How much of this is real value creation versus investors chasing hype?

James Yendrey

I would say the answer it’s a bit, it’s a blend of both, right? AI is real. You have productivity gains and CapEx spending with real demand to back it. But markets don’t just price in reality. They try to price in the future, and you have to figure out how much of that is priced in the future.

Anything over the last few years regarding if anybody mentions “AI” in an earnings call, you’re seeing double digit gains and it’s not necessarily a valuation, it’s more of a narrative story that they, that these guys are spending because they’re painting the picture of the future but you still have these individuals that are trying to chase the next level, the next thing. A few years ago, you had Bitcoin, you had automations and autonomy, and now we’re going to be seeing the boom of AI and data centers and people are really trying to capitalize on it and not be left behind in a week.

Mary MacNamara

Okay, so Nvidia does have massive revenue growth and real dominance. How do you tell the difference between a generally transformational company and a stock that’s priced so perfectly that even good news isn’t enough?

James Yendrey

I would say that a great company answers a core question, “Is this business changing how the world works?” I think that’s a prism that a lot of great companies are trying to view themselves and position themselves here for the betterment of humanity and how we can move the needle forward.

A great stock on the other hand is how much of that future is already priced into the stock. How much can I squeeze? How much earnings can I squeeze out of it already? Things like that take a couple of earnings calls ago, Nvidia was smashing records. They beat it and they met all of their expectations.

They did everything right, yet still somehow disappointed investors. Their stock ends up falling, even though they matched and beat their expectations, but because it wasn’t such a large enough beat, you’re starting to see good news become bad news, right?

This flawless execution forever is unsustainable when you’re looking at things long term. And when you start to figure out, if things are priced in, maybe that growth had already been priced in okay. Would the stock come back to what people would call some sort of an equilibrium or where it would be justified at that point in time?

Mary MacNamara

It reminds me of like when you’re in high school or even middle school, and you come home and if you always get A’s and your parents say, “So what”? “What’d you get on the math test? A, oh, okay, that’s good. Yeah, glad, keep it up”. Then you have the kid who often gets B+ or B-, and they get an A and the parents are like, “Wow, this is great”!

Oh my gosh. Keep studying. And so, I feel like Nvidia is something in that scale of you’re the best student. You’re doing it, you’re taking the AP classes, everything is great, and then boom, you just keep getting A’s and it’s okay, we’ll just incrementally set it, right?

James Yendrey

That could also be a factor of the difference between an A+ and an A-, right? So, if you’re an A+ student and you fall down to an A-, even though it is seen as good inherently, it’s still less than what it should be.

Mary MacNamara

So, it’s interesting. All right. So, we’ve seen some hype cycles before dot com, SPACs, cannabis, what’s similar about AI and what, if anything, makes this cycle different?

James Yendrey

I would say the similarity is the rush, usually capital floods in quite fast, narrative, outruns numbers, and weak players provide strong stories. The difference is that AI has paying customers already with real revenues, massive balance sheets backing it like the think dot com, right?

This isn’t pets.com back in the early nineties, think of it as if you want to take that same timeframe, the early infrastructure of what would be amazon.com.  AI isn’t going anywhere, the main question you would ask is: “Who captures the value and at what price are they capturing it for?”

Mary MacNamara

Let’s flip the sides and talk about Costco and Walmart, which aren’t as exciting, but they’ve quietly crushed it. What fundamentals are actually driving their long-term success?

James Yendrey

Costco and Walmart have been winning by doing boring things extremely well. Lower prices, scale logistics. They have generational loyalty with repeat customers. They’re not trend chasing really. They’re really building on the trust generation over generation. Costco turns consumers into members, Walmart turns efficiencies into margin and these businesses aren’t really exciting quarter to quarter, but when you start to branch out and look at it over decades, it becomes something that you can convert into a predictable shareholder return, that’s the difference.

Mary MacNamara

So, Costco trades at a premium valuation for a retailer. Walmart grows slowly but predictably. How should investors think about boring stocks versus fast growers when comparing returns?

James Yendrey: Fast growers sell the possibility like everybody was geared towards AI, even though it was completely unproven. Boring companies sell reliability. Costco’s premium valuation reflects trust. Their whole thing is they’re not charging you for it. They’re predominant, like I think about 70 or 80% of their revenue comes from the subscription-based model programs that they’ve had.

Walmart’s slower growth means that it still matters because it’s durable. The lesson overall isn’t that boring is better. It’s that consistency outcomes can beat exciting forecasts when exciting forecasts have yet to materialize.

Mary MacNamara

It’s so interesting. I saw this article recently about when people go on vacation, they’re so loyal to Costco. They’ll be in Japan on vacation and they’ll go visit the Costco there just to see what it’s like and is that wild?

James Yendrey

It was the same thing with McDonald’s. People tried different McDonald’s and from all over the, what was it? Pulp Fiction back in the day, they had they talked about what a Big Mac was; it was a “royale with cheese” in France. And it actually is, it’s a royale

Mary MacNamara

They had mustard on their fries. So weird. My gosh. Okay, so psychologically, how do you stick with the steady 6% growth company when someone you know just made 50% on an AI stock?

James Yendrey

Another good question. You have to remind yourself that it’s not a highlight reel. You should have exposure to both, right? You want to make sure that you have the blend so you can also participate in the upside of that 50% growth. But ensuring that the bulk of your portfolio is stable and able to weather and becomes more recessionary or hype resistant.

If you have something that’s over levered in tech, say 43% or more if Nvidia, even though they beat expectations contracts 2%. Your portfolio has taken a huge hit because it’s not just Nvidia that’s contracting, it’s going to be the entire tech sector plus the subsidiaries that rely on Nvidia to actually push that portfolio up.

Mary MacNamara

Yeah, they have just a huge market share and part of the S&P and whole nine yards.

James Yendrey

Yeah, Nvidia is expensive and but discipline can be compounded.

Mary MacNamara

So people say valuation doesn’t matter for growth stocks. Is there any truth to that or is it just a story we tell ourselves when things feel unstoppable?

James Yendrey

Valuation always matters. It is just a matter of when eventually, evaluation always matters, right? What people really mean is that when it doesn’t matter is it doesn’t matter right now in the short run, stories can dominate in the long run. Returns gravitate back towards earnings and cash flow.

Ignoring valuation for a moment it can be fine, but you have to make sure that the valuation actually catches up with the output and the overall expectation. Yeah, until growth slows growth is always going to slow.

Three signs you’re buying into a FOMO thing is are you going to be more focused on the chart than the business?  Are you buying this because it’s already made money or you feel urgency and don’t really understand what you’re getting into?

Conviction can feel calm, but FOMO feels rushed. And so if those three things make you feel like you’re missing out or rushing you to make a decision and you don’t fully know what you’re actually investing into on a long-term basis, it is probably best to sit on the sidelines and evaluate it a little bit more thoroughly before you implement it into some holistic plan.

Mary MacNamara

Good words for advice there, James. So, is it possible to balance both high growth, hype driven sectors like AI and boring fundamentals driven stocks, or do investors eventually have to pick a lane?

James Yendrey

Do they have to pick a lane? You can do both for sure. As long as you’re honest about it, that becomes inherently the problem. Right? Problems arise when investors pretend speculation is some sort of a long-term investing strategy. When there’s nothing wrong with growth as long as you don’t confuse it with the momentary excitement of being hype based or driven.

A question that every investor could ask themselves is, what has to be true for this stock to be a good investment? If the answer depends on perfect execution, nonstop hype, or other people buying it after you, it’s not really investing. You’re hoping.

Mary MacNamara

So final takeaway. If listeners remember one question to ask before buying any stock, what should it be?

James Yendrey

One takeaway question I would say is what has to be true for this stock to be a good investment? What has to be true because again, that depends on whether it’s going to be hype driven or are the fundamentals exactly where you would like them to be, to guarantee the level of success that you would like to see within the portfolio, or do other people have to lose or buy in later for you to actually materialize the gain.

So that inherently is the FOMO versus foundation, the foundational approach to it.

Mary MacNamara

Love it. Thank you so much, James. James Yendrey with InvestMentor. Thank you so much for joining us today. We look forward to the next podcast.

James Yendrey: Thank you, ma’am. Great seeing you again, Mary.