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Avoid Investment Fads

Avoid Investment Fads

March 28, 2019

Sound investment strategies are based on long-term realities, not short-term fads.

Unfortunately, human nature can make speculating and guessing too resistible to refuse. In reality, investing is not guesswork.

Over the years I have had the opportunity to listen toNobel laureate Eugene Fama speak at investment conferences. Many regard Professor Fama as the person who has contributed the most to modern-day finance.

According to Professor Fama there is one robust new idea in finance with investment implications maybe every 10 or 15 years, whereas the investment industry seems to create a new marketing idea every week.

We all know that fads come and go. In recent years there has been a lot of speculation with cryptocurrency. That hype diminished with the focus on marijuana stocks.

Investment fads are like a bus. A new one comes along every 10 minutes.

Investors are encouraged to ignore fads and follow the sound principles of investing.

Think long-term. Yes, there will be future fads, but how do you predict the what-and-when of the next hot idea?

If you are fortunate enough to make money on a fad investment, how do you translate that lucky guess into future profitable investments?

The global capital market is made up of trillions of dollars with an infinite number of variables that affect the value of specific stocks.

Professor Fama believes the best proxy for the value of a stock is the price of that stock. There are decades of evidence supporting the futility of attempting to predict which stocks will out-outperform.

There is strong logic and evidence to inform us that stocks provide higher long-term return than bonds. Use that knowledge.

If you want to own stocks then the driving factor should be diversification. Own hundreds or thousands of stocks, not just a few.

Use knowledge, be an evidence-based investor.



Peter Watson is an agent of, and securities products are provided by, Aligned Capital Partners Inc. (ACPI). ACPI is a member of the investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Peter Watson Investments.