I have fear of missing out on the car finance scandal

Times

5 hours ago

Banks breathed a huge sigh of relief last week when the Supreme Court ruled they were off the hook for billions of pounds worth of car finance compensation — and the celebration was shared by their shareholders.
If the court had ruled the other way it would have triggered a costly compensation free-for-all in which millions of drivers who had bought a car on finance could have claimed that it was mis-sold because of hidden commission in the deals.
• How drivers were sold a car finance compensation fantasy
Instead, in the aftermath of the judgment, which is likely to limit payouts considerably, shares in British banks surged. On Monday, Close Brothers, a car finance lender, rose 25 per cent in the morning and was still up 23 per cent by the end of the day. Lloyds Banking Group, which also has a car finance arm, was up 9 per cent. There is no doubt that some investors did very well out of the court's decision.
It has sparked a sensation I know all too well — 'fear of missing out', more commonly known as 'fomo'.
Last Christmas, when it transpired that my parents and siblings would be in one place for the big day and I would be in another, my brother told me not to do 'anything ridiculous'. By this, he meant that I should avoid attempting some valiant eight-hour round trip so that the whole family could be together for a few hours.
It also affects some of my financial decisions. In hindsight, I kept my cash savings in Premium Bonds for far longer than I should have done — the real average return for most holders is lower than in a standard easy-access account — because I feared missing out on a big win.
• Premium Bond prizes worth £105m sitting unclaimed
However, when it comes to big investment choices for my stocks and shares Isa, I've generally managed to resist. My portfolio is set up in a way that means I shouldn't have to make changes, and I'm focused on long-term growth over short-term wins.
Most of my portfolio, about 80 per cent, is in a low-cost global tracker fund. This is well diversified because it tracks stock markets from different regions. The rest is in 'satellite holdings' — typically riskier or more niche investments. The idea is that you may do very well out of them, but you are also not relying on them for steady growth year-on-year.
But there are some weeks when my investment fomo chips away at my 'buy-and-hold' mentality, and this week was one of them.
Moments like this — when individual stocks make as much in a few hours as my portfolio has in four years — mean that it can be hard to resist following the crowd. I felt the same way when my friend made nearly £11,000 from holding the computer chip designer turned AI superpower Nvidia, or when another chose to back Rolls-Royce last year (it's up 85 per cent since January).
But rationale tells me that getting a big win from single stocks isn't as easy as it seems in the days or weeks when share prices are rocketing skyward. To invest sensibly in individual companies (rather than effectively gambling), you need the knowledge and time to track the news flows, broker notes and performance of each of these companies. You probably also need a sprinkling of luck.
And you only get fomo when share prices go up — you never have it over the kind of sharp market decline that you are more protected from when you have a diversified portfolio. When 'safe' bank stocks fell by as much as 90 per cent in the 2007-08 financial crash, I doubt any investors who were fortunate enough to be spared that pain felt any emotions other than relief and sympathy.
Despite nervousness over President Trump's tariffs and the general state of the economy, the S&P 500 is up 8 per cent so far this year as investors continue to pump money into US stocks. The US market's collection of high-flying technology stocks have, after all, been the main place to make money for years. Nvidia is up 302 per cent in two years, Microsoft 62 per cent and Meta, Facebook's parent company, 130 per cent.
Such companies are now extremely costly, and arguably very overpriced. The cyclically adjusted price-to-earnings ratio (or Cape, used to measure how cheap or expensive an investment is based on its share price versus profits) of the S&P 500 is about 37x. Nvidia has a forward price-to-earnings ratio of 35x, while Tesla has a ratio of 152x. Meta and Microsoft combined are now worth twice as much as the entire FTSE 100.
For context, the Cape ratio was 27x before the 2008 financial crisis and is nearing the level it was at in 1999 and 2000, during the dotcom bubble. In the aftermath, from March 2000 to October 2002, technology stocks fell nearly 80 per cent.
Overvalued stocks come with risks. There is the potential that they are part of a bubble and, because their share price is based on future earnings growth, any small setback to these figures can cause steep share price declines. In general, stocks with sensible valuations tend to be less volatile and, of course, it's easier to make money if you buy a company at a good price.
The fact that investors still like stocks with such high ratios looks a lot like fomo in action to me — and, unusually, I want absolutely nothing to do with it.