As we are midway through the year, it can be a good idea to take stock of what happened so far, and what we can learn from it. Looking back is an important activity as we seek to progress. It’s not about beating ourselves up for mistakes or feeding our ego for profitable decisions; it’s about learning and improving our thought and decision-making process.
Fads Are the "Thing" of 2021
There are two dominant fads this year: 1) what are known as meme stocks and 2) cryptocurrencies. Significant movements in both types of assets were driven by headlines and social media posts, not by fundamental changes in the businesses or the economy.
Hype is the primary force behind the making of a fad. Positive hype often drives prices significantly higher and fuels overconfidence in investors. The lack of positive hype can deflate an asset and cause despair and anger. In other words: Hype initiates a fad and our emotions keep the fad going.
Beware of The Fad
“Investing” in a fad is not real investing, it is speculating. This is because the price movement of these “securities” is driven more by what someone says or how a group of people feel than the underlying value or business, the asset it represents (if there is one) or the economic situation. Fads are highly sensitive and may change radically on a daily basis without any foundation.
Fads can make or lose you a lot of money. A fad can seem fun and exciting - but beware, such excitement may be short lived. The short and long-term cost of the powerful, yet temporary, excitement may be significant.
What Have We Learned?
Expect to see more fads. There will be talk of “this time is different” and “paradigm shifts” to rationalize opinions and investment decisions. Recognize them for what they are.
Your plan (meaning your financial future) is more important than seeming like you are exciting and hip with your investments. I’ll go for boring and enduring any day!
If you’d like to talk more about fads or anything else financial, please schedule a time at www.financialplanpartners.com.