How often do you get messages like this on LinkedIn?
“I would love to send you the Next 50 Unicorns (insert fad investment) List if you accept this connection request. This list of potential investments will potentially make you a fortune.”
You think to yourself why do these companies bother sending this junk out? Well, it’s because people do fall for this stuff. We get messages like this all the time in our inboxes because there’s a market for it. As humans, we’re suckers for this stuff. We are always in search of the next big thing. I get it … we like new.
We like bigger, better, faster and we’re always curious about what’s behind that next door.
Talk about chasing the next big thing. Just look at diets: keto, paleo, carnivore, vegan, intermittent fasting, the list goes on. Apparently, with some diets, you can have your bacon and eat it too – along with your avocados, nuts, flax seeds, hemp hearts, chia seeds, olives, and cold-pressed olive oil. Doesn’t sound like a human meal to me. Sounds like guinea pig food.
Instead of facing the fact that we simply eat too much, we’re constantly looking for that easy way out – like a magic pill that will still let us enjoy fries and ice cream.
Fad investments are no different than fad diets. We want what’s easy and that’s why we’re constantly chasing the next big thing. We want that get-rich-quick investment that will put us on easy street so we’re always looking to be the first one on that next investment bandwagon. We want to be an early adopter, be a part of something new, the next big thing.
Who wants to invest in a boring building? Investing in utilities is blah. Who wants to grow stuff? The only thing I want to grow is my Instagram followers by showing them all the “bling” I’ve made. That’s the mentality of fad investors, just like the attitude of fad dieters.
What unicorns are fad investors chasing these days? Bitcoin? Blockchain? Penny Stocks? COVID-19 vaccines? Gold mining stocks? Inverse funds?
These are all sound investments, right? Not exactly. Just like your chances of seeing a unicorn in the wild, your chances of hitting it big on the latest greatest investment are slim. Wait. Unicorns aren’t real?
Why chase unicorns? Venture capital firms chase unicorns for a living and they’re only successful 10% of the time. What chance do the rest of us have?
Stop chasing unicorns.
Invest in what works.
Boring isn’t such a bad thing in the investment world. Investing in demand, in essential goods people need every day, is profitable. Why mess with what works?
Procter & Gamble was one of the success stories of the Great Depression because it turns out people still needed soap – even in bad times. Other industries that thrived during the Great Depression? Food, shelter, household products, healthcare, communications, and security.
Not much has changed since the Great Depression. Even in the midst of the COVID-19-induced recession, people still need food, shelter, and clothing along with the need to work (have a job). Businesses catering to these essential needs will always be in demand.
Investing in demand means investing in companies, not ideas. It’s boring and requires patience. It’s not for the unicorn chasers and speculators.
Are you a speculator or are you more interested in investing in companies?
Compare the difference:
- Buy or sell based on emotion (herd mentality, internet hype, etc.).
- Rely on timing to make money – selling and moving on to the next big thing.
- Have no real interest in the company behind the stock.
Investors in companies…
- Invest in companies that offer goods or services with real-world demand in good times and bad.
- Do a thorough analysis of a prospective company and believe it has long-term growth potential or undervalued assets.
- Understand what the company does and its sustainable competitive position in its market.
- Invest for the long-term.
Chasing unicorns can be exhausting. Constantly chasing the next big investment can be just as exhausting and equally unfruitful. Most investors are speculators – constantly chasing the next big thing in hopes of winning the lottery. And just like the lottery, most investors lose. Don’t speculate!
Some of the most successful investors ever weren’t speculators. They didn’t chase fads and they were satisfied with boring.
They live by a few simple investing principles:
- Avoid crazes and fads.
- The investment must have intrinsic value
- Seek to profit from the predictability and sustainability of long-term demand.
- Look at long-term profitability and not short-term gain.
Over the last few years, many investors have made key investment decisions based on the wrong principle – and that overriding principle has been to get rich quick and not on sound financial fundamentals.
Predictability may be boring but investing in demand with long-standing results will have lasting power that will result in predictable profits, which fad investments can’t offer. Boring investments like commercial real estate will always be in demand – housing especially.
Sticking with what works has long been a good investment strategy for generating consistent, recession-insulated income. Boring investments might not generate many Facebook likes, but they’ll generate wealth that shiny investments can’t.