The companies that dominate the market change. The people that run the dominant companies change.
But, one thing never changes: human nature.
Over and over again, investors get sucked into hyped-up growth stories. These investors may capture some big gains initially. But those gains are on paper.
Investors hold on expecting more great things to come because they’re greedy, and they think tomorrow will look a lot like today.
Then reality sets in.
The shares of the “sure thing” stock come crashing to earth. It’s a horror movie with the same bad ending.
Instead of blood and gore, the little guy gets caught holding the bag and suffers big losses, never to recover.
But what’s really galling is that the little guy does the same thing all over again when the next investing fad becomes the market’s must-own trend.
Unless you’ve been living under a rock, you know the latest craze has been blockchain, the technology behind digital currencies like Bitcoin. Last year, Long Island Iced Tea Corp. – the makers of, um, iced tea – changed its name to Long Blockchain (Nasdaq: LBCC).
Crazier still, this isn’t the first time we’ve seen something like this.
During the tech craze in the late 1990s, companies attached “.com” to the end of their names even if they had nothing to do with the internet. Speculators scooped up those shares like ravenous swine.
You laugh, but how certain are you that your investment choices are immune to buzzwords and hype?
When Long Island Iced Tea changed its name, the stock spiked from about $2 to $7.
That’s 250% – on a name change. That gave the company a market value of $70 million.
Today, the stock has been delisted from the Nasdaq, and the Securities and Exchange Commission (SEC) has subpoenaed the company. Its current market value? About $5 million.
People never learn.
To be sure, there are real blockchain investment opportunities. Not all of it is hype.
Hidden Profits has recommended a blockchain opportunity with legitimate business prospects and an A-List investor base. The blockchain has the potential to create tremendous value. It just won’t create much value in iced tea.
Recently, McDonald’s (NYSE: MCD) jumped into the digital currency theme when it announced the release of the MacCoin, the first fully food-backed global currency. This sent folks into a frenzy thinking it was a digital currency. Speculators were looking to buy!
Of course, the MacCoin is nothing more than a heavier-than-normal coupon for a free burger. Great joke, and it’s not even April Fools’ Day!
(Hey, at least you can get a burger out of it. LBCC investors just have regret.)
The reaction tells me that people are still too wrapped up in the digital currency frenzy.
I remember starting my career on Wall Street in the late 1990s. There was this company no one had ever heard of, and it was offering an allocation in a lottery to its initial public offering. It wasn’t even clear what business the company was in!
But, professional investors, who should know better, were in a total panic to get some shares. It was the talk of the water cooler. Back then it was typical for stocks to rise 1,000% on the day of their offering. In the end, it was probably a hoax.
I don’t recall the company ever going public – those who were fooled by it probably recall all the gory details – but it illustrated how mass hysteria can ensue during a bubble in the markets.
The best thing to do is to take a deep breath, stick to your investment discipline, and ignore all the hype. Your blood pressure and your investment account will thank you.