The Peril of Investment Fads

It was just one year ago when Bitcoin was the talk of anyone who could fog a mirror. It was a Thanksgiving dinner topic that resulted in many people confusing investing for speculating.  There was a lot of positive momentum in price, forecasts and bragging rights to own this new “investment.”

One year later

So how are we doing? Despite predictions of significant gains in 2018, we haven’t seen it. An analyst, who was touted as having correctly predicted Bitcoin’s initial breakout, said she saw the currency trading between $50,000 and $100,000 in 2018.[1]  Not quite.

Bitcoin recently traded below $4,000. A loss of about 80% from its 2017 highs. Quite a difference from the five-fold increase predicted by the respected cryptocurrency analyst earlier this year.

Even respected periodicals, such as Forbes, missed it. After Bitcoin sold off significantly in mid 2018, they predicted it would end the year at $10,000.[2] That is still possible if it can increase 250% in one month. Possible, but not likely.

Another Example

In late summer, marijuana stocks became the rage. It was the new paradigm shift where “investors” could make some quick and easy money. IGCC increased by 3,500% in just two months based on changes in law and expectations of how this will change our lives. Who wouldn’t be excited by that?

Those that actually invested in it. Two months after hitting its high, IGCC declined 97%.[3]

The Takeaway

Real investing is not sexy. It doesn’t activate our dopamine receptors nor cause our heart rate to increase. It doesn’t make us giddy nor despondent.

We will see more fads. There will be things that appear to work better than your strategy. There will be talks of “paradigm shifts” to rationalize poor decision making.

The clear question is whether you want your portfolio to be exciting or whether you want it to be enduring. I suggest the latter.