It is quite fun to try to predict the future and invest in companies in the sweet spot of your prognostications. Investing in long-term growth trends with short-term dislocations is a viable strategy, and we do this often. But finding the “next big thing” is entirely different and is fraught with pitfalls. Such positioning comes with great peril because the future is not that predictable. More importantly, it is also likely that other investors share your view already and beating you to the punch is what causes FOMO and will likely cause you to overpay.

When I think of all the recent flops, so many come to mind it’s hard to narrow my choices. What I say could be applied to bitcoin or to other flukes and manias like AMC Theatres. But it also applies to pot stock mania from 2018 as everyone anticipated the eventual legalization and “fields ripe for picking.” Many of those weed stocks, like Tilray, now trade at a nickel on the dollar. That went up in smoke faster than you could load your bong.

Then there’s Beyond Meat. The 2019 IPO at $25 went well and the stock traded to the mid $60s within moments, amid great excitement. As FOMO kicked in a year later, the price crowded $200 per share without broad adoption or wide acceptance. Today it’s $13 per share, and the company is bleeding money, with sales essentially flat over the last two years. As it turns out, not everyone is a future vegetarian.

Meanwhile, during this same time you could have had 1.5x your money in Home Depot shares. Home Depot has also paid and hiked their dividend by 25% in the same period, which they have often done in their forty-year history. Home Depot is up over 500% in the last decade. Boring but profitable and did not require much conjecture about the future.

Unfortunately, we humans have terrible memories, allowing the occasional success we might have predicted correctly along the way to leave us encouraged enough to try again and fail miserably. We also like games of chance, especially when we feel we have advantageous insights, equating momentum to opportunity.

In a perfect world, these insights would be easy to mine and create profits. While it is true that people do have occasional success with this, that success is not replicable over time and the losses can be huge and take down overall returns dramatically. We just don’t seem to remember it this way when we play it back to ourselves. Choose wisely.

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