Investing In Trends And Not Fads
Why do people invest in fads… Because they’re exciting, sexy, and everyone’s talking about them. Psychology has a lot to do with investor fervor for the latest fads. This is nowhere more apparent than in tech, where the latest product can find life – albeit for a short time – solely on buzz.
Remember these fads?
- New Coke.
- Google Glass.
The problem with fads is that although there may be tremendous interest and excitement over the product or service, that excitement usually only lasts for a short time.
It’s hard for investors not to jump on the bandwagon when everyone else is doing it.
The fear of missing out (FOMO) is real and a significant driver of investor interest in the latest and greatest craze. Everyone wants to get in early so they can ride the train to riches, and nobody wants to miss out. How else to explain investor interest in Dogecoin, a cryptocurrency that started as a joke and not accepted anywhere as a medium of exchange?
The crowds embrace fads because of the excitement factor, but savvy investors are more interested in trends – something with sticking power.
These investors are interested in both established long-term trends and viable short-term trends. Established long-term trends have solid track records and should continue to perform based on documented metrics and analytics. Viable short-term trends have a high probability of becoming long-term trends based on demographic or economic trends.
One trend that sophisticated investors have latched onto since the Great Recession has been the rise of the renter nation as homeownership has become more and more out of reach.
Since 2008, the demand for multifamily housing – especially in the affordable sector – has outpaced supply. As demand has outpaced supply, vacancies have been held at bay while rents have steadily climbed – making for solid investments with reliable cash flow and long-term appreciation.
Recently, the trend of rising rents has hit hyperdrive as 33 percent rent increases and bidding wars on rentals are the new norm in some parts of America as reopening comes with big price hikes. This trend isn’t expected to subside in some country areas anytime soon as residents flee high-tax, business-unfriendly coastal states for the South and Midwest.
The crowds invest in fads looking to hit the next jackpot. Smart investors aren’t interested in what the crowds are buzzing about. They’re more interested in economic performance backed up by data, math, and metrics.
Why invest in an unknown when you can invest in something with an established track record with metrics that point towards ongoing performance? What’s important to the fad investor differs substantially from what’s important to an investor interested in trends.
Check out the differences:
What’s Important To The Fad Investor?
- Timing – They want to get in before everyone else and hopefully sell at the crest of popularity.
- Buzz – The quality of an investment is directly correlated with hype: the more hype, the better.
- Track Records And Numbers Are Irrelevant – Fad investors don’t care about the underlying company or even management experience. They don’t care about the numbers. They’re only concerned about the superficial factors surrounding the asset.
Investors In Trends.
- Metrics and Economics – They’re interested in the underlying economics, demographics, numbers, and metrics that indicate the long-term viability of an asset.
- Underlying Company And Management – They’re interested in the track record of the underlying company and the experience and expertise of management that ensures long-term growth potential.
- Risk Mitigating Factors – They’re interested in risk analysis and the mitigating factors that would prevent significant downturns or complete loss of their investments.
When making investment decisions, smart investors keep the following in mind:
- Find a gap in the market with long-term trend potential.
- Ignore hype, buzz, crazes, and fads.
- Stick with tangible assets. The price of tangible assets is not easily manipulated.
- Stick to predictability and long-term sustainability.
- Think long-term. Avoid the temptation of short-term home runs.
Investing in fads is like gambling. The house always wins. Instead of speculating, invest in trends – looking beyond the here and now and more for the long-term.
Don’t ignore the numbers. Embrace them and value them. Numbers and data don’t lie.
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.