Explainer · Investor psychology
FOMO: why people buy after the big jump
In January 2021, GameStop went from under $20 to a $347.51 close on 27 January (pre-split prices), then fell more than 86% from its 28 January intraday high of $483 in about a week. Why do people chase a stock after a big jump?
Key points
- Accounts trading GameStop each day went from under 10,000 at the start of January 2021 to nearly 900,000 by 27 January (SEC staff report).
- FOMO is the fear of missing out. One way to read it: a big jump can look like proof, and the more people pile in, the safer it can feel to follow.
- Research by Brad Barber and Terrance Odean, using US data from 1991–1999, found individual investors tend to buy attention-grabbing stocks: in the news, heavily traded, or with extreme one-day moves.
- Three questions worth asking when FOMO hits: Why is it up? Would I still want it if it hadn't moved? Can I afford to be wrong?
Sources
- SEC Staff Report on Equity and Options Market Structure Conditions in Early 2021 (14 Oct 2021)
- Barber & Odean, "All That Glitters", Review of Financial Studies 21(2), 2008
- Prices: Yahoo Finance (shown before the 2022 4-for-1 split)
Educational · Not financial advice Made with AI tools (AI voices and visuals), checked by a person
