With some investments backed by dazzling adverts and breathless enthusiasm from promoters, it can sometimes be tough to see whether there’s any real substance to an investment beyond the hype.
In many cases, beyond the promotional pizzazz, the investment could actually be far from dazzling. In fact, falling for investment hype could be not so much breath-taking as cash-taking.
So let’s look more closely at hype, explore the factors investors should consider when deciding on the most appropriate investment for them, and how to manage their FOMO when the hype is at its highest. Investment hype is often associated with more speculative higher-risk investments, so hype is a warning sign to always be wary. There are several ways to manage your FOMO and avoid getting caught out in the hype.
What is hype?
Hype is the intensive, sometimes spectacular, form of promoting something – products, services or even people. Hype typically makes questionable claims that exaggerate capabilities and benefits.
In some cases, hype might be seen as a bit of harmless fun or entertainment. But when it comes to investments, being taken in by hype can mean being dazzled by theoretical profits, and ignoring the risks, sometimes with harmful consequences.
Hype-r-ventilating: when emotion overtakes reason
There are several examples of hype driving people’s emotions, and in turn their behaviours: creating a wave of demand that can be self-sustaining, due to peer pressure and FOMO.
Remember those round-the-block queues at new phone launches, the first customers cheered like Olympic champions as they emerged with shopping bags containing the latest handsets?
Trainer drops, fidget spinners and gaming console launch events have all promoted new consumer ‘must haves’, hyped to the max by producers, leaving consumers willing to camp out overnight or pay over the odds for the latest product so they don’t miss out. This hype is often created (sometimes artificially) by manufacturers only releasing limited numbers of products. Sometimes, scarcity is a key ingredient in the creation of hype.
Hype-driven panic buying by investors is nothing new, from the Dutch tulip bulb mania of the 15th century to the dot.com IT stock-buying frenzy of the late 1990s.
But social media and online message boards have added fuel to the fire, as frenzied buying surrounding so-called meme-stocks like GameStop in early 2020 proved. While some investors may have made gains, many also made losses on GameStop and other meme-stock investments. Just because some short term ‘bets’ come off, a lot of the time, steep losses might be experienced. Ultimately, hype driven investments often end badly, so always be cautious when faced with hype.
Find out more about the lessons we can learn from the GameStop episode.
Time frames and price
You might feel under pressure to act quickly, because of the fear of missing out if it is implied that there is a limited time period to buy an investment before it’s price rises. Live and ever-changing graphs in investment apps and on search engines can help to fuel this kind of hype, as you can see fractional price changes in real time.
Limited opportunities to buy
Hype drives FOMO – if something comes in limited supply, like an investment in a risky start-up company or a new, hyped-up crypto, consumers can feel pressurised to buy before others get in first. The messaging might say things like 'a once-only opportunity' or 'when they’re gone, they’re gone'.
Sometimes, products such as non-fungible tokens (NFTs) have limited supply. Consumers can feel pressurised to snap them up before others do, which can also be emphasised through marketplace techniques including stock counts. However, there are no consumer protections for NFTs, or any cryptoassets. This means they are not FSCS protected. As a result, if you buy these you should be prepared to lose all the money you invest.
External influence (from influencers/celebrities)
Messaging and paid endorsements from influencers and celebrities that have a high level of sway over audiences can add to the hype, heightening the appeal of some products/investments to consumers/investors. For example, reality TV personality Kim Kardashian promoted a crypto token to her 250 million Instagram followers. Be wary of listening to celebrities telling you to buy something that they may know little about.
Peer pressure (friends/family)
Friends and family influence can add to the sense of hype, increasing the feeling of pressure to participate, partly due to FOMO. If those around you or in the WhatsApp group are ‘bigging something up’, you’re likely to feel more compelled to get ‘some of the action’ yourself – whether you admit that to yourself or not! While you might be happy to trust your mates for their tips on the best places to eat in town, are their views on investments as reliable?
Hype often excitedly describes how strong the product (or a similar one) has previously sold or performed, again playing on FOMO.
But it’s worth remembering that simply because an investment performed well previously, this does not mean it – or one like it – will perform well again. Of course, it could perform badly, leaving investors out of pocket, and many hyped opportunities may not have any previous performance to review. Be wary of firms who make promises on future investment performance. These promises are unlikely to reflect how an investment will actually perform.
First-time and inexperienced investors can be drawn to new products rather than more mainstream investments. The sense of breaking new ground – getting in ahead of others who back the ‘same old established investments’ – can add to the appeal of getting in early on what’s presented as an exciting opportunity. However, newer, more innovative investments often carry additional risks that can leave investors out of pocket.
Hype drives emotion – but emotion can be an investor’s worst enemy
All too often investors are at the greatest risk of making poor choices when led by emotions, particularly when feeling under pressure to make a quick decision. And bad decisions when investing your money can be very costly, as you could end up losing more money than you originally put in.
Managing your FOMO
Here are some tips to avoid getting caught up in the hype.
- Check multiple sources – verify the information you’re being given about investment opportunities. If the information doesn’t add up, don’t invest, and if you don’t quite understand what you are investing in, then don’t.
- Don’t rely only on media or celebrity endorsements as a source of reliable investment information – instead, be sure to use a range of sources. The MoneyHelper website is a great place to start. When you're researching an investment opportunity it’s always a good idea to make sure it’s not a scam first. Find out more about investment scams on our ScamSmart page.
- Check what you are investing in and the factors that may affect its value over time.
- Check for an underlying motive – ask yourself whether the person or people providing you with information about an investment opportunity have an underlying motive, and might not be acting in your interest.
- Pause before you invest – sometimes, stepping away and not investing in a particular product is the best decision you could make.
- Understand what drives the profits of the company you might invest in, and what factors affect the industry they are in, as well as the company itself.
- Diversify your investment – hold a mixture of assets. For more information, read our article about the power of diversification.
- Consider your goals – make investment decisions that fit with your goals and don’t rush any decisions.
Remember, don’t let yourself be hyped into making hasty decisions and always make sure you are ready to invest. Learning to see through the hype around some investments is an important step to becoming a smarter investor.
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Tips on getting your immediate finances in order before you investSee our tips
Lessons to learn from the GameStop episode
Learn the risks of buying shares in a volatile marketRead the article
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