“Should I invest in [XYZ]?!”
I get this question a lot. Not from clients or RetireMembers, but from strangers, acquaintances, and friends.
“I heard about [ABC], what do you think?”
“Will [LMNOP] be the next Amazon?”
“[Celebrity So-and-So] just invested a bazillion dollars into [QRS]. Should I do that?”
“[HIJK] is up 40%! Should I invest?”
If you’re listening to this episode because I or a friend of yours sent it to you directly, you ask me or that friend a question like this.
Often, the answer is:
“It’s too late.”
Last week we asked, “Is it too late to invest?” We wondered if it was too late in life for people to invest in equities (either because they were too close to retirement or too close to the end). This week we ask the following:
“Is it too late to invest in [insert investing fad/trend/opportunity here]?”
First, we have your classic speculation. We see ads from the Motley Fool like, “This company could be the next Amazon.” Or we hear from a friend that this new cryptocurrency is the pinnacle of cryptos and will upset the world banking order.
“Investing” in these is not investing at all, but speculation. Stop.
These “opportunities” are opportunities to lose money. They are not tested, tried, or true. Have a solid principle-based investment plan and stick to that instead.
But then we have these “opportunities” that do have a track record. A stock that is already up 10s if not 100s of percents. Should we invest then?
Here is the guiding principle:
By the time you hear about it, it’s too late.
By the time something has happened enough to hit the news, and then by the time you read it, it’s too late! The growth has already happened. You are much more likely to be buying at the top than to be buying something that still has farther to go.
Do not do it. It’s too late.
Every time a crypto or stock or fund is up dramatically, I always get asked this question. But it’s too late! People never ask if they should buy in when things are low. Only after they have gone up do they want to buy.
We have a name for that: Euphoria.
It’s the precursor to the Fourth Horsemen. If you are buying something that has already gone up dramatically in value, you are almost certainly buying at the top before it crashes.
Invest in a Plan, not a Fad
You should have a solid financial plan, funded by a diversified portfolio of high-quality equities before you do any speculation.
One might remark, “Oh, so you should learn how to walk before you run.”
No! That phrase implies that running is better, but you must have the fundamentals down first.
Speculating is not an improvement over investing. It is not a progression.
I’m not saying you should walk before you run. I’m saying you should learn how to drive a car before you learn how to parasail.
Parasailing might be exhilarating. But it’s a poor way to commute to where you need to go. It has very little utility if any.
Learn to drive first. Driving has a proven track record of getting people where they want and need to go. If you learn to drive, you will never need to learn to parasail in order to get to your destination.
If you have an investing plan, you can speculate after everything else is in order. But that doesn’t mean you should. Investing will already get you where you need to go. Speculating may be exhilarating. But it has very little utility if any.
The Next Time
The next time you see an “opportunity” to invest in a trend that has already grown, shake your head, say to yourself, “It’s too late,” and keep following the plan.
It is never too late to invest in a solid equity investing plan. It is always too late to invest in a fad.
This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are the opinions of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.