• Brock Williamson, CFP®

The Peril of Investment Fads

It was just one year ago when Bitcoin was the talk of anyone who could fog a mirror. It was a Thanksgiving dinner topic that resulted in many people confusing investing for speculating. There was a lot of positive momentum in price, forecasts and bragging rights to own this new “investment.”

One year later

So how are Bitcoin speculators doing? Despite predictions of significant gains in 2018, we haven’t seen it. An analyst, who was touted as having correctly predicted Bitcoin’s initial breakout, said she saw the currency trading between $50,000 and $100,000 in 2018.[1] Not quite.

Bitcoin recently traded below $4,000. A loss of about 80% from its 2017 highs; that’s quite a difference from the five-fold increase predicted by the respected cryptocurrency analyst earlier this year.

Even respected periodicals, such as Forbes, missed it. After Bitcoin sold off significantly in mid-2018, they predicted it would end the year at $10,000.[2] That is still possible if it can increase 250% in one month. I guess that’s possible, but not likely.

Another Example

In late summer, marijuana stocks became the rage. It was the new paradigm shift where “investors” could make some quick and easy money. One such stock, IGCC, increased by 3,500% in just two months. This surge was based on changes in law and expectations of how this will change our lives. Who wouldn’t be excited by that?

So what are the results of those who actually “invested” in it. Two months after hitting its high, IGCC declined 97%.[3]

The Takeaway

Real investing is not sexy. It doesn’t activate our dopamine receptors nor cause our heart rate to increase. It doesn’t make us giddy nor despondent.

We will see more fads. There will be things that appear to work better than your strategy. There will be talks of “paradigm shifts” to rationalize poor decision making.

The clear question is whether you want your portfolio to be exciting or whether you want it to be enduring. Our approach is the latter.


[1] CNBC. Jan 16, 2018. “Bitcoin heading to $100,000”
[2] Forbes. Jul 10, 2018. “Bitcoin Looks Likely to End the Year Around $10,000 Barring Positive Regulatory News”
[3] Marketwatch. November 27, 2018. “The collapse of this cannabis stock offers a valuable lesson to every investor”
©2018 The Behavioral Finance Network. Used with permission

© 2020 Promontory Financial Planning. The material provided is for general information, and should not be considered a solicitation for the purchase or sale of any security.

brokercheck.png