April Fools Day is right around the corner and companies are already launching "pranks" to observer the occasion.
I for one can't wait to see the reveal of the Hummer EV, oh wait that's a real thing.
While undoubtedly some companies will fool customers with fake product announcements, most will see the announcement immediately for what it is.
The same skepticism should be applied to any number of popular investments. A majority of investors might see GameStop (GME) for what it is but that doesn't mean some investors won't fall for the alleged "value" case for the stock and losing badly.
Here are some other investments that are very popular right now that investors should be wary of to make sure they're not left holding the bag.
Reddit Stocks
GameStop and other Reddit or meme stocks haven't exactly gone unnoticed over the past few months with GME soaring and congressional hearings featuring CEOs of some online brokers and a certain big winner from Reddit. Most immediately knew GME was not a long-term investment but rather a quick trade that could lead to massive gains or losses due to the high volatility caused by a number of factors. However, the fact that the stock surged again at the end of February and remains over $190 a share after starting the year trading around $9 has likely convinced some investors to hold longer. Outside of sticking it to the man, herd mentality, and diamond hands there are few reasons to hold GME and it offers massive risk as the stock is almost guaranteed to fall back down to earth as traders/Redditors move to new stocks and the next squeeze never happens.
Reddit stocks have made many retail investors a lot of money but also led to massive losses for those same retail traders as well as at least one hedge fund. The meme stock run has been fun and might last a while longer, but don't get fooled into thinking it's a smart long term investment. Don’t be the one buying at $200 and selling in six months at $10. Other stocks such as AMC Entertainment (AMC) and Bed Bath & Beyond (BBBY) hold somewhat similar risk but at a much smaller scale.
Bitcoin
Elon Musk’s favorite currency has been on a massive run since around October of last year. A bitcoin (BTC) was worth roughly $11,000 five months ago and that same bitcoin would now be worth over $58,000.
Why?
Because who doesn't love bitcoin!
In reality a large reason for the growth in cryptocurrency is likely due to more businesses announcing plans to accept and potentially other cryptocurrencies as payment. Tesla (TSLA) recently announced it will accept bitcoin for vehicle purchases. Additionally, PayPal (PYPL) also said it will allow Americans to pay with Bitcoin at millions of vendors. This development is extremely great news for cryptocurrency but in reality these businesses are not actually accepting Bitcoin, Paypal is just handling the conversion. Tesla is not selling any vehicles for 1 BTC, instead it is selling products listed in U.S. dollars and allowing you to buy in the Bitcoin equivalent price. In fact, if you take too long to order the price will expire and you have to start over due to Bitcoin’s volatility. The same is true for PayPal where customers can convert their Bitcoin into fiat currencies at checkout and then purchase goods.
It’s obviously still a good thing that people can now actually use Bitcoin to purchase goods and services but it's still just being changed into currencies that are actually accepted as payment. Down the line, Bitcoin may be accepted Bitcoin with the price of coffee at 0.0001 BTC, but that doesn't seem likely any time soon, especially given the cryptocurrency's continued volatility.
The problem for investors can be found by asking what problem Bitcoin actually solves. It may be a decent investment for short-term speculation but is there a need for Bitcoin in today’s world? The biggest "features" of cryptocurrency seems to be no central authority or banks, security, and low fees. The latter two can be applied to most standard currencies as banks are very secure and offer far lower fees that they used to. Other than just an aversion to fiscal and monetary policy, the "advantage" of there being no central bank seems dubious. At least gold has some intrinsic value as a metal valued for aesthetic reasons and industrial purposes.
Non-Fungible Token (NFT)
Not to pile on blockchain, but why do non-fungible tokens (NFTs) exist?
Maybe I'm the fool for not understanding them at all, but for some reason I still have the notion that a product is meant to offer some value and satisfy a need. There needs to be a reason to purchase a good or service and that seems to be missing with non-fungible tokens.
The pitch is that, NFTs act similarly to art as it is essentially the a claim to ownership of the original version of a digital piece of art or video. It's not a form of patent that allows the owner of a NFT to be the only one in possession of a gif or meme, but the NFT is original and distinct from any number of copies. Thus, it trades similar to a piece of art with value coming from the notion that a unique piece of work has value over its copies.
Investing in art has a long history and tends to be riskier investment for the wealthy, although one can lead to large returns. NFTs are the start of a digitized version of trading artwork and can offer some diversity to an investors portfolio. However, NFTs are very popular right now and are trading at high prices due to them being new and faddish instead of a systemic change where every new meme format is sold to the highest bidder and Michael Jordan can buy that picture of himself crying.
Investors should be cautious with NFTs as many companies are jumping on the bandwagon, causing stock prices to surge after an announcement. More and more collectors are buying these tokens but it remains to be seen how long this trend will continue and if the average investor ever really jumps on board. Cryptocurrency already is highly volatile and offers limited advantages over fiat currencies, crypto art is just the next level of volatility, with even less intrinsic value.
