Most Fads Don’t Last
When I received my second paycheck, I knew right away what I wanted: Polo boots.
My identity was tied to them. Everyone was wearing them, and I wanted my own.
I wore those boots every day for a year. Not a good idea.
I was captivated by the moment, but then it was over, and I wanted something new.
We crave novelty but are enchanted by FOMO (fear of missing out).
Investment fads are similar.
Everyone wanted railroad stocks in the 1920s, dot com stocks in the 1990s, and, for a moment, these past few years, weight-loss drug stocks.
Initially, these weight-loss companies experienced meteoric rises as investors flocked to their stocks, lured by the promise of explosive growth. While early adopters saw significant returns, the tide seems to be turning.
Eli Lilly & Co. - the drug company that makes the obesity and diabetes drugs Zepbound and Mounjaro - recently released results that fell short of analysts’ expectations. Its shares fell 6.6% in one day, the worst one-day drop since 2021:
Bloomberg’s John Authers comments further:
“The market’s response was symptomatic of growing intolerance for drugmakers’ inability to turn hype into cash. It didn’t matter that the company predicted the revenue miss in its third-quarter earnings call. The Tema GLP-1, Obesity & Cardiometabolic ETF, which invests in weight-loss drugmakers, has been on a slide since September”
The danger of chasing performance lies in buying high and selling low.
By the time a trend becomes mainstream, much of the potential upside has often already been realized. Investors entering late essentially pay a premium, only to see prices drop when the hype fades.
In investing, patience and prudence often outperform trend-chasing.
Don’t let FOMO steer your financial future off course. Instead, aim for steady growth over flashy returns, and you’ll thank yourself in the long run.