Fads, FOMO, And Financial Ruin

The Red Flags To Help You Avoid Risky Trends

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Table of Contents

• The Red Flags To Help You Avoid Risky Trends

• Digital Junk

• The Cannabis High Is Over

• More Bad Apples Fall

• Avoid Fads, Focus On The Long Term

• The Dark Consequences Of Trump’s New Investment

• Three Things To Know Before We Go…

Editor’s note: With Porter on vacation this week, we are presenting an issue of The Big Secret On Wall Street that is as relevant today as it was when we published it in January 2024… It involves fad investing… And we share it with you as a way to point out what we at Porter & Co. do not do – we don’t chase crazes, pumped-up stocks, or trends of the day. 

Instead, our flagship advisory The Big Secret On Wall Street focuses on capital efficient stocks and world-class businesses that you can buy and hold forever, since we seek out companies that prioritize returning significant cash to shareholders over the long term.

Even Sir Isaac Newton got sucked into an investment fad.

In late 1719, Newton accumulated a position in The South Sea Company valued at £13,000, equivalent to $2.5 million in today’s money. The South Sea Company was a British joint-stock company (an early version of an LLC) founded in 1711 by an Act of Parliament. After a few years of lackluster performance, King George took over as the company’s governor, which sent the shares soaring.

After buying in under £200 per share, Sir Isaac began selling the stock at £400 per share.

Demand kept rising from February 1720 to April 1720, and South Sea share prices roughly doubled.

Newton bought back in… at almost double the price he received as a seller months prior. Weeks after his new purchase, the stock price collapsed from over £950 to under £200. 

By December 1720, Newton lost today’s equivalent of millions. He’d discovered gravity decades earlier when an apple fell in his garden – but now, he’d learned painfully that the same principles held true in the stock market.