Have you heard about the latest, most excellent investment?
Of course, you have because there’s always one being pumped by the financial press catering to an investing public plagued with a bandwagon mentality.
This bandwagon mentality is what contributes to stock market volatility. Because of stock market liquidity, investors can jump out of investments just as quickly as they jumped in.
If you’re one of the millions of bandwagon investors who have been dazzled by:
- The latest must-have IPO…
Then you’re probably struggling to find your footing. That’s because all of these investments are speculative and high-risk. Not much different from hitting the Las Vegas Strip.
Many don’t have established revenue history, so you’re banking on making money from your investment by selling it for a higher price than what you bought it at and hope that others continue to jump on the bandwagon.
Remember when Bitcoin was all the rage until it finally hit its peak of almost $20,000 in December of 2017?
There was a feeding frenzy for Bitcoin for no apparent reason. There were no significant or fundamental changes to the underlying investment. Unlike traditional currency, it still wasn’t regulated or backed by any governments, and the Bitcoin exchanges hadn’t suddenly become more secure.
So, the only explanation for Bitcoin’s rise was investor frenzy and appetite, which historically has shown to blow in the wind. That bandwagon mentality is why Bitcoin nosedived from its peak to where it hovers today around $8,000.
As long as there are investors, there are always going to be bandwagon investments.
Investors have always been seduced by the latest shiny thing – dot-coms and mortgage-backed securities in the past and cryptocurrency, Cannabis, CBD, ICOs, and the latest and greatest IPOs in the present.
Somehow the investing public always tends to ignore underlying investing fundamentals when the latest shining investment catches fire.
Here is a sampling of some underlying flaws with the latest and greatest investments.
- Blockchain tech struggles to find a standard, is unregulated, and has a high environmental cost because it requires a tremendous amount of computing power.
- Crypto is affected by government legislation, fraud, and bears the stigma of being favored by drug dealers and dark web purveyors for its anonymity.
- Cannabis, despite being legalized for recreational use in a number of states, stands on shaky ground for interstate marketing because, ultimately, it is still illegal at the federal level.
- CBD, like many health crazes, is fraught with unsubstantiated claims with no scientific data to back up its touted benefits.
- IPOs are a crapshoot. For every success like Beyond Meat, there are ten failures like Uber, Lyft, WeWork, Peloton, and Endeavor.
To wade through all the noise and to avoid being sucked into the bandwagon vortex, step back and ask yourself a few fundamental investing questions before taking the plunge.
These are questions that investors like Warren Buffet and other ultra-high-net-worth investors (“UHNWIs”) have been asking themselves for years.
- What is my objective?
- Am I investing or speculating?
- Does the investment provide income?
- Does it have a history of growth?
- What are the chances of losing my entire investment?
- What is my exit strategy?
- Am I investing because of the fear of missing out?
- Is there protection in a downturn?
Any investor can get lucky 1 out of 10 times and invest in the next Amazon, but for sustained wealth building, UHNWIs don’t speculate. They look for established investment classes with a history of growth that generates income that can be compounded and one that will appreciate over time that is backed by hard assets where it would be near impossible to lose your entire investment.
Here at TruePoint Capital, we apply these fundamental investing questions to avoid getting blinded by the latest exciting news or shiny new investment.
Our loyalty is to our investors, and our objective is to meet the goals of our investors by providing income, growth, capital preservation, and a defined exit.
We also seek out investment segments that continue to pay during downturns. It has served us well in the past, and we are confident in our strategies and processes going forward.
Take control of your portfolio and invest with intention.
Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.
Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.