Pet rocks have no place in investing
Hula hoops. Leisure Suits. Music videos. The Macarena. Crocs. The list of pop culture fads that have come and gone over the decades is long. Each decade brings a list of new temporary crazes that, in time, fade into history. Often the only lingering evidence is photos of questionable apparel or dated hairstyles to be denigrated by future generations with a simple question: “What were you thinking?”
We sometimes observe similar changes over time in investing. There are “fads” in the sense that a specific investment or asset class may attract a tremendous amount of attention for a brief period of time, before investors become disenchanted and move on. The “Nifty Fifty” and the Internet stock bubble come to mind, although there are plenty of other examples.
The risk in pop culture fads may be limited to those potentially embarrassing photos that provide evidence of past attempts to be trendy. However, the risk of following investment fads can be much more costly. Today’s “hot investment” may be tomorrow’s “ten-foot pole” material. When will those fads change? Nobody knows, and trying to time those decisions is a recipe for disaster.
Instead of trying to predict the next fad, hot stock, or top-performing asset class, we recommend that investors take a more strategic approach by building a well-conceived plan for their portfolios. Investors should create a portfolio that takes into consideration their unique goals and needs, tolerance for risk, and investment time horizons. Memorializing those factors in an investment policy statement, implementing the portfolio based on those terms, and maintaining the discipline to stick to the strategy over the long term will serve an investor well. In the end, it’s not “timing the market” that will make the difference, but “time in the market.”
Nobody can predict the future, but successful investors need not do so to achieve their goals: a plan, discipline, and patience are essential elements of successful investing. Predicting the next fad is not.
We sometimes observe similar changes over time in investing. There are “fads” in the sense that a specific investment or asset class may attract a tremendous amount of attention for a brief period of time, before investors become disenchanted and move on. The “Nifty Fifty” and the Internet stock bubble come to mind, although there are plenty of other examples.
The risk in pop culture fads may be limited to those potentially embarrassing photos that provide evidence of past attempts to be trendy. However, the risk of following investment fads can be much more costly. Today’s “hot investment” may be tomorrow’s “ten-foot pole” material. When will those fads change? Nobody knows, and trying to time those decisions is a recipe for disaster.
Instead of trying to predict the next fad, hot stock, or top-performing asset class, we recommend that investors take a more strategic approach by building a well-conceived plan for their portfolios. Investors should create a portfolio that takes into consideration their unique goals and needs, tolerance for risk, and investment time horizons. Memorializing those factors in an investment policy statement, implementing the portfolio based on those terms, and maintaining the discipline to stick to the strategy over the long term will serve an investor well. In the end, it’s not “timing the market” that will make the difference, but “time in the market.”
Nobody can predict the future, but successful investors need not do so to achieve their goals: a plan, discipline, and patience are essential elements of successful investing. Predicting the next fad is not.
