The American Exception - Part II

FROM THE DESK OF STEVEN FELDMAN

OPEN POSITION

FOMO, YOLO, and OCHO
The three stages of investor psychology - and introducing my addition to the lexicon: OCHO (Over It, Checked Out), and why it is the most dangerous stage of all.

In American Exception Part I, I wrote about what I believe is a surprising, and often unnerving, investment paradox. That is the coexistence of the American stock market, which continues to reach new heights and ever more stretched valuations, and an ever more disturbing set of global “field conditions”. This paradox resonated in the Wealthion community, a set of independent-minded and self-directed investors who generally believe in American exceptionalism, especially as it relates to most things economic. However, they know a lot about these field conditions and are wondering whether we are going to run of room on the road of can-kicking? And more importantly, what should they be doing as investors

I love the fact that the Wealthion community is engaged, and we are trying to answer those questions every day on the channel. But my observation is that most investors aren't really asking these important questions, and I am particularly thinking about those investors who do not have the runway to recover from a major correction. So, in this letter, I am going to explore why more investors are not similarly engaged.

STAGE ONE: FOMO

The Market Keeps Winning, So Why Would I Miss Out?

Start with the facts. The S&P 500 is more than 30 percent above where it was a year ago. In that year, it has shrugged off war, the biggest energy crisis in history according to the IEA, record-low consumer confidence, and a political environment that would have been considered science fiction merely a decade ago.

Every serious-sounding analyst who found compelling reasons to sell equities over the last seventeen years, which included a global pandemic that paralyzed the world’s economic activity, was right about the risks and wrong about the outcome. Right about the field conditions. Wrong about the market.

This is the foundation of FOMO - the fear of missing out - which has been the dominant investor psychology since the GFC bottom in 2009. If you had acted on every macro warning since then, you would have missed the greatest bull market in history. The market, it turns out, doesn't care what you think about geopolitics.

But before we dismiss FOMO as mere psychology, we should understand the structural machinery underneath it because there are real, legitimate reasons the market has shrugged off deteriorating field conditions for seventeen years. The S&P 500 is not the American economy. Far from it. It is a self-curating collection of 500 great companies that have survived the gauntlet of American capitalism - the weak get shed, the strong get added, continuously, relentlessly. Where have you gone, Sears? Woolworths?

The Magnificent Seven - Apple, Microsoft, Alphabet, Amazon, Tesla, Nvidia, Meta - represent a third or more of the entire index, operating at global scale with very attractive margins. And layered underneath all of it: the most extraordinary monetary and fiscal stimulus in modern history. Near-zero rates for much of the last fifteen years. Deficit spending that has taken US government debt from $10 trillion at the GFC to $39 trillion today.

| That is not the market being wise. That is the market being carried. 

Gillian Tett of the Financial Times reminds us that professional asset managers suffer from FOMO as well - they need to keep buying even when nervous, because underperforming benchmarks is career-ending. In other words, FOMO isn't just a retail investor phenomenon. It is baked into the institutional architecture of the market.

FOMO, in other words, has been substantially rational - because the structural forces behind it were real. The danger is that investors have conflated the performance with the reasoning behind it and stopped asking whether the field conditions that produced this performance still hold today.

But FOMO, as a psychological state, requires you to be paying attention. You must be watching the scoreboard, feeling the anxiety of being left behind, making a conscious decision to stay in or get back in. FOMO is an active condition. What I'm observing now is something different, and I think considerably more dangerous.

STAGE TWO: YOLO

I Know the Risks. Who Gives a Damn.

The next stage of investor behavior is what I'd call YOLO - You Only Live Once. This is related to FOMO but meaningfully different, and considerably more self-aware. The YOLO investor isn't ignoring the risks or the field conditions. They know about them. They've read the warnings, absorbed the arguments, looked at the valuations, and arrived at a considered conclusion: so what?

The YOLO argument runs like this. Seventeen years of catastrophe, seventeen years of new highs. A global pandemic? Markets recovered in months. Wars on multiple continents? Markets shrugged. The biggest energy crisis in history? Record highs. Every dip got bought. Every macro warning got embarrassed. At some point the evidence doesn't just suggest staying long. It demands it. And if you are worried about stretched valuations, the market has a simple answer: it has been stretched before, and it got more stretched.

| The YOLO investor isn't delusional. They're drawing a reasonable conclusion from  
|  seventeen years of data. The question isn't whether they're wrong to trust the market. 
|  The question is whether the market they're trusting still means what they think it means.

As an important aside, approximate 70% of stock trading is algorithmic. Markets react to news in minutes. Algorithms herd in the same direction, momentum feeds on itself, and what George Soros calls reflexivity takes hold - our perceptions shaping reality as much as reflecting it. Said more simply: the market goes up because we believe it goes up.

So, the YOLO investor, who believes they are making a rational long-term bet on American corporate excellence, is riding something considerably more unstable: a reflexive system at stretched valuations, partially priced on its own momentum, with household equity allocations at the highest levels ever recorded - higher than the dot-com peak in 1999. That is a different thing from owning great companies at fair value. The field conditions and the valuations are both flashing amber. The repricing, when it comes, does not announce itself in advance (remember, escalator up, elevator down).

But at least the YOLO investor is deciding. What comes next is worse.

STAGE THREE: OCHO

Over It, Checked Out

But here is what I think is really going on for a growing number of investors, and it is more dangerous than either FOMO or YOLO. It’s my invention and contribution to the lexicon. I'm calling it OCHO - Over it, Checked Out - and it isn't really an investment thesis at all. It is the absence of one.

Think about what we have absorbed in the last six years. A pandemic that killed millions and rewired not just daily life, but likely our brains forever (a global near-death experience). Wars on two continents. Drones (some with facial recognition) and hypersonic missiles redefining conflict in a far more deadly way. A climate crisis that is no longer abstract - it is not just the warmer weather outside but the fires eating cities. An AI revolution that is, depending on your perspective, either the most exciting or most terrifying development in human history, and quite possibly both. A news cycle so relentless and so extreme that the doomsday clock now sits at 89 seconds to midnight, and most people read that and think: sure, okay, what's for dinner?

And then someone like me comes along and says: you should also be thinking carefully about your asset allocation. Maybe you should be more diversified. Gold? Real assets? If I had one more acronym in me, it would be “FODE” – falling on deaf ears.

| The doomsday clock has nothing to do with your retirement account. But we've started          |  using it as an excuse not to think about the things that do. 

The logic of OCHO runs like this: if the risks are truly existential - nuclear, climate, civilizational AI - then no portfolio construction matters anyway. You can't diversify against the end of the world. So why agonize over stretched valuations or deteriorating field conditions? And if we muddle through, as we always seem to, then you should be long. There is no middle scenario worth the cognitive effort of acting on. The path of least resistance is to stay invested and stop thinking about it.

This is not YOLO, which is at least an active decision. OCHO is passive capitulation - not a choice to be long, but an exhaustion-driven inability to make any choice at all. The FOMO investor is watching the scoreboard. The YOLO investor has decided the scoreboard always reads the same way. The OCHO investor has stopped looking at the scoreboard entirely. Fully exposed, no hand on the wheel - they will not rebalance, will not reduce risk as valuations stretch, and will not have dry powder when dislocations arrive.

That is the most dangerous investor of the three. Not because they are the most wrong, but because they are the most unreachable.

SO, WHAT DO YOU ACTUALLY DO?

Stay Awake. Stay Anchored.

Let me be direct: I am not asking anyone to time the market. Timing the market is not an investment strategy. It is a fantasy that has destroyed more wealth than any bear market in history. That is not what this is about.

What I am asking is something simpler and harder: stay awake to the difference between owning great companies and owning a momentum-driven reflexive system at record valuations. They are not the same thing, even when they look the same on a brokerage statement. No one ever felt as good watching their portfolio rise as they felt bad watching it fall.

Forget timing, instead think diversification. In practice? Start with gold. As a monetary asset and hedge against the field conditions. Over the long arc, especially in the slow erosion scenario I described last month, gold is the most direct expression of a portfolio's independence from dollar purchasing power.

Other than gold - real assets more broadly: copper, uranium, energy infrastructure, agricultural land. The physical world that underpins the digital one. When intelligence gets cheap, genuine scarcity gets expensive. In the stock market, stick to companies with real pricing power and durable cash flows - companies that earn returns whether inflation runs at 2% or 5% (I am not a stock picker, but companies like Costco and Visa would fit this bill if you could enter at a reasonable valuation). Geographic diversification if you can. And meaningful liquidity – cash which generates a return nowadays and provide dry powder for the dislocations that will arrive.

The goal is not to predict when the stock market falls. It is to build a portfolio that is still standing when it does - and positioned to benefit from what comes next. 

FOMO, YOLO, and my invention OCHO - three stages of the same surrender: the gradual abdication of active, considered portfolio thinking in favor of inertia dressed up as strategy. Each stage feels reasonable in the moment. Each stage leaves you more exposed than the last.

The slow erosion scenario - no dramatic collapse, just the gradual compounding of fragility - is precisely the environment where all three stages keep working right up until they don't. Where the investors who stayed awake spend a decade looking cautious, then spend a decade looking wise.

I'll take wise.

Steven Feldman is the co-founder & CEO of GBI. This newsletter is for informational purposes only and does not constitute investment advice.