Have you ever watched a peacock strut around on full display? From a human’s perspective, we believe a peacock is a beautiful, proud and slightly arrogant animal.In reality, they are just trying to court another peacock.
Certain global capital markets have an amazing way of emulating a glorious peacock, but the reality of those markets might just be a feather duster.
Back in 2001, during my internet wine auction house days at Winebid.com, there were many peacocks running around on full display, with dot.com business models that were pumped up with hype and meteoric pro-forma projections such as Pets.com, Drugstore.com and online grocer Webvan. All these businesses are now feather dusters.
To protect your portfolio, and provide you with insight, here are a few feather dusters you should avoid:
Bitcoin as store of value
Bitcoin has often been touted as a store of value, similar to gold and the US Dollar. However, the value of Bitcoin dropped 54% in one month on May, 19th 2021 from its all time high in April 2021. Furthermore, Bitcoin has no underlying intrinsic value, which is a large reason for the extreme volatility. Bitcoin is not used to facilitate daily transactions, nor is it adopted as a reserve currency by any country in the world. At this moment, Bitcoin is purely speculative, and is at risk of being viewed as an outcast by major economic world powers.
Unless you are lucky enough to invest in the top 10% of Initial Public Offerings, you run the risk of negative returns. In a recent Nasdaq study looking at companies three years after their IPO, the study calculated that almost two-thirds of all IPO’s are now underperforming the market with 10% lagging behind overall market returns. Holding onto those investments which seemed exciting at the time, cost investors money. Lately, we have been investing in late stage, pre-IPO companies through several secondary investment funds with strong track records, a.k.a., buying from the inside. Once a company executes an initial public offering, you are buying stock from the outside and much of the value has already been squeezed out. The key to assuring solid returns is to buy the stock from the inside.
Investments that are too good to be true
If it’s too good to be true, it likely is. There is a reason that Bernie Madoff was the most successful Ponzi scam artist ever, stealing over $18 billion from investors. He promised higher than average returns without fail while seducing and abusing his personal network.
However, it takes two to tango. Investors were naïve enough to not perform their own due diligence. “The financial mechanisms behind the con man’s moneymaking scheme are always secret or hard to verify,” Tamar Frankel, a Boston University professor said. “There is always a smell of illegality, persistent but subtle enough that people are willing to overlook it in order to get at the financial returns.”
Investing can be a risky business.
We all make mistakes along the way; however, you can learn from others to prevent the same mistakes. Peacock investments sometimes show up in beautiful and alluring packaging, but without doing your due diligence, you may end up with a feather duster. As always, consult your financial advisor and trusted sources before you invest in any opportunities.
Please reach out any time if you’d like to discuss why we believe investing in commercial medical real estate is not a peacock or a feather duster.