To celebrate the holidays, we here at the Fool are devoting extra virtual ink to all things consumer-focused in a special section called "The 12 Days of Christmas." Over the coming week, we'll have our "12 Days of Content" surrounding consumer-focused names that look set to profit or perish from the holiday cheer.
Following fads is cool … provided you're 12 years old. For an investor, though, getting caught up in the financial equivalent of the pet rock can be a quick road to ruin.
It's not always easy to spy modern-day versions of the Dutch tulip bulb craze -- at least, not when they're in full bloom. That probably explains why I'm still smarting from having bought JDS Uniphase at $150 a share during the height of the tech-stock craze. It's still in single digits, even after a 1-for-8 reverse split a few years back.
Easy come, easy go
Whether it's property or roller-sneakers, pogs or Crocs
Need a quick way to tell whether the company you're interested investing is a fad? Check whether the stock has the latest popular name attached to it. When e-commerce was just gaining popularity, it was essential to have ".com" in your company name, or sport the letter "e" to show where you stood. And for every viable Amazon.com
Meet the new boss...
When you invest in the flavor of the month, occasionally you will find successful companies that eventually rise above the rest. But the vast majority will remain just plain old vanilla.
For example, international investing is not a fad, but plenty of Chinese stocks on the market today are just going along for the ride. There are literally hundreds of companies with the word "China" in their name; only the most naive investor would think a good portion of them aren't simply trying to cash in on interest in the sector. China Security & Surveillance Technology
...same as the old boss
Some of the manias, bubbles, and fads we've encountered just over just the past couple of years include nanotechnology, ETFs, video game console wars, and hedge funds. The latter was so popular, its devotees even threw a rollicking extravaganza they dubbed Hedgestock -- the 2-and-20 crowd's answer to the junk bond era's Predator's Ball.
What popular trends today will leave us looking back in regret a few years from now? I don't think we've gotten over our infatuation with China yet, or all the emerging BRIC markets for that matter. And commodities, considered a hedge against currency risk and perceived fiscal troubles within the U.S. economy, remain ripe with opportunity to still be classified as a bubble.
That's particularly true of gold. Investors can buy bullion, coins, or jewelry. They can choose ETFs that take physical possession of the yellow rock, or trade on the daily movements in its price. They can buy stocks in actual mining companies, or mutual funds that invest in them. A major player like Barrick Gold
Gambling stocks are still rolling the dice, too. In fact, you can double down on your fads, since Las Vegas Sands
A Fool's errand
Warren Buffett famously noted that you only see who's been swimming naked when the tide goes out. That holds true whether it refers to insurers holding too much risk, as the Oracle was, or to fad stocks whose fortunes won't last.
But even if trend-seeking kids give Hot Topic
Follow along with our "12 Days of Christmas" article series:
