- The Cautionary
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- Greed-to-Grief, No. 27
It starts when we are young and a parent says, “How can you have any pudding if you don’t eat your meat?” As we move into the school years, it’s all about being part of a clique or doing things other kids do. As adults, we continue these behaviors by being socially competitive posting glamorous vacation photos for our friends to see, and push them to think, “I wish I were part of that.”
What are we talking about? FOMO, or Fear of Missing Out. FOMO is to blame for so many of the wrong things that happen in our lives, the list would consume three or four weeks’ worth of posts.
The psychology of FOMO leads to disaster by triggering emotional and impulsive decisions that override logic and long-term strategy. Driven by instincts and amplified by social media, FOMO can result in poor choices of friends, boneheaded investment choices, debt accumulation, and the erosion of decision-making discipline.
Humans have an innate need to belong and conform. In uncertain situations, individuals look to others for guidance and assume the collective action is based on reliable information, leading them to follow the crowd without thinking twice.
Social media platforms constantly highlight success stories (e.g., see the vacation comment above) which makes people feel inadequate and that they are "falling behind" their peers.
The pain of missing out on a potential gain can feel psychologically equivalent to an actual loss.
This powerful motivation to avoid regret pushes people to act impulsively to capture opportunities.
In financial situations, individuals experiencing FOMO tend to selectively seek out information that confirms their urge to invest in a trending asset while ignoring warning signs or contradictory data, creating an illusion of certainty.
Small-town financial advisor Burt Marshall was a master at inducing FOMO in his clients and stealing their money. Marshall worked out of a nicely appointed office in Hamilton, a small town in upstate New York that is home to Colgate University.
Marshall built on the credibility established by his parents, who were local insurance brokers in the Hamilton area. Marshall had more than 1,000 clients that invested with him
Burt Marshall, the guy who almost wiped out a small town
Marshall also preyed upon what I call the its-off-my-desk effect. By handing their money over to Marshall, the local college faculty, police officers, clergy, tradespeople, and others relieved themselves of the burden of worrying about the decision making involved with investments. Send it to Marshall, get a check every quarter, and forget about it.
Friends told friends about Marshall, relatives encouraged their children to send him money. Before long, anybody in Hamilton with a extra $1,000 was an investor with Marshall.
When speaking of sending money to Marshall, one investor put it, “We left it there so that it would accumulate. Well, it accumulated in his pocket.”
His big play was his “8% Fund,” which guaranteed an 8% return whether the markets were up or down. Yeah, right.
It started to unravel for Marshall when he was hospitalized for a serious illness. With Marshall sidelined, his investors started withdrawing their money. Only problem was Marshall’s business was a Ponzi scheme.
He was using money from new investors to pay off older investors. When his illness stopped the flow of new money coming in, cash on hand could not keep up with demands for cash going out, and quickly, the enterprise was in bankruptcy.
In the wreckage that cost his investors almost $100 million, it was discovered that Marshall was pretty good at producing the fabricated financial statements that were sent to investors who didn’t know better.
Smiling and waving as he walked down Main Street, shaking hands and giving hugs at church, and then smirking in the back room of his office prepping fake documents. What a guy!
Current estimates are that investors will recover less than 10% of their money. The rest of the money funded Marshall’s lifestyle and lousy real estate deals. FOMO took over a town and ruined the retirement dreams of many.
At 73 years old, Marshall was indicted this summer and faces a lengthy prison sentence if convicted.
Key Takeaways
Trust no one. Especially the guy everybody else trusts.
What Marshall did was wrong, but why wasn’t anybody suspicious about how he made so much money so consistently? The people of Hamilton were lazy in their decision-making process and it cost them dearly.
Marshall must have had an incredible ability to deceive. His scam ran for many years and he was often face-to-face with his victims, unlike those emails we get from Nigeria encouraging us to invest. Marshall was never the person the town thought he was.
Things I think about
Weather accounts for 10% of airplane crashes, mechanical failure for 25%, and pilot error is responsible for 65% of crashes.
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See the full reading list here.