Penn Wealth Publishing

2021.08.22 Penn Wealth Report Vol 9 Issue 03

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Copyright 2021. All Rights Reserved. 10 penn wealth Report volume 9 issue 03 22 aug 2021 investment Intelligence The investment world is full of contradictions. Back in 1999, we truly were entering the Golden Age of computer and Internet technology: a transformative period which would level the playing field by giving individuals power once reserved for huge corporations. Yet, we were also on the precipice of a 78% downturn in the tech-laden NASDAQ. We now have 24/7 business coverage which can alert us of important events within minutes, yet that didn't prevent the stock market from losing one-third of its value in the matter of a few months in the spring of 2020. Individual investors now have free access to a wealth of knowledge and the ability to execute com- mission-free trading using a device in the palm of their hands, yet their portfolios can be decimated within a matter of days due to forces outside of their control. Financial engineering, a term we typically use as a pejorative, has been churning out a slew of alternative investment vehicles over the past few years; mesmer- izing beasts from cryptocurrencies to non-fungible tokens (NFTs) to special purpose acquisition com- panies (SPACs). Chemical engineering brought the world a slew of transformative products in the middle of the last century; it also brought us DDT-infused wallpaper which promised to "keep disease-carrying pests out of your child's room." We are fully supportive of new investment vehicles and technologies designed to enhance an individual's abil- ity to invest successfully. Sadly, however, too many of these individuals are being sold a bill of goods designed to line the pockets of the issuer rather than the investor. With all the information at our fingertips, too few are willing to perform the due diligence required to avoid being fleeced, and a few stories of glowing success attract others to jump in—the "fear of missing out" syndrome. In the midst of the GameStop (GME) trading frenzy, a documentary was released which outlined the Robinhood/Reddit/WallStreetBets phenomenon. One early "successful" GME trader was highlighted, and a particular comment he made was both stunning and emblematic of the current trading zeitgeist: "I spent an entire day researching everything about the stock mar- ket before making my investment." Talk about shades of 1999. Using the GME trader's comments as a clarion call warning of trouble ahead, let's consider a few of the over-hyped bundles of energy which are setting up nicely for an implosion. e cryptocurrency craze: anything can happen in an investment's infancy It is common for investors to look back at recent his- tory and lament, "If only I had made an investment in (pick the company or the industry)!" Let's play that inclination out with respect to one of the greatest growth booms of all time: online shopping. To be sure, a decent investment in a small outfit called Amazon (AMZN $3,444) back in 1998—when it was sitting at $5 per share—would have made an investor quite wealthy (assuming they never wavered during all of those tense periods when the shares were cratering—a huge assumption). But what about an investment in arguably (at the time) an excellent play on the nascent movement: Pets.com. Not only was the online shopping movement about to mushroom, the company was built around our cuddly, furry, lovable household animals. What seemed like a great investment ended up in a pile of charred wreckage, taking 100% of investors' money with it. It wasn't that the concept was faulty— just fast forward two decades and look at $29 billion Chewy—it was that the technology platform needed for Pets.com to actually make money wasn't yet in place. Which swerves us directly into cryptos. Few—with the possible exception of co-curmud- geons Warren Buffet and Charlie Munger—are arguing that cryptocurrencies are just a fad which will soon pass. But is the infrastructure which will allow them to flourish as a means of exchange still decades off? From cryptos to NFTs to SPACs, FOMO has spurred a new wave of investment into vehicles which few fully understand Alternative Investments 1947 DDT wallpaper ad; Creative Commons Feeding Frenzy

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