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Three Lessons from Riding the Hype Train

Posted in Trading

Back in 1981, a movie called The Cannonball Run had me fascinated with the Lamborghini. Not because of the ladies driving the car, but the sleek styling of the supercar, more so than the Ferrari. Today, I favor the Ferrari, but the car of my youth was the Lambo Countach. The earliest memory of the movie, besides the ludicrous premise and characters, is Jackie Chan driving with a partner in a high-tech Subaru. He had warning computers that tracked their route, drive without lights in the dark, and early warning of police cars. They were glasses that highlighted the road and the police car up ahead. This opened my imagination to the idea of computers used for augmented reality.

Early History of VR and AR

With the increasingly popularity of Virtual Reality (VR) and Augmented Reality (AR), one would think that this is a recent technology. However, the early premise was postulated in the 1960’s. Ivan Sutherland created the first VR system, and later built a head-mounted system in 1968. Fifty years later, technology has advanced and costs have come down, allowing consumers access to VR and AR technology. More companies are being founded, driving further development in software and hardware.

If one would have invested in VR technology early on, one would have to wait a very long time for that investment to pan out. Although many want to invest like Warren Buffett and Charlie Munger, many do not have the patience to invest for the long-term. Even waiting for five years would be too much for many investors. This is one of the reasons why Ponzi schemes work. People want to see some sort of return right away, no matter how small, like 1% return per month in the case of Bernie Madoff’s fund. But, the misconception of fast returns on technology will cause much pain. We tend to have short-term memories on the technology bubble from year 2000-2001. Maybe this time is different…

Three Lessons I Have Learned Riding the Tech Hype

There is a small California company that I have invested early on back in year 2001. This company built high resolution small displays that can be mounted on helmets. The technology also used organic light emitting diodes (OLED). These are the same technology now found on many smartphones. They also won several contracts from the U.S. government, furthering their research and development. The displays had the effectiveness of watching a large high-definition television, when mounted in front of the eye. I saw the potential for VR and AR applications with this technology. However, the stock did not recover from the hype and the tech bubble, and floated near its low price for a very long time.

  1. Investing too early is as bad as investing too late. One can hope that the stock will go up, while the stock is moving sideways or declining gradually, but the price action shows lack of interest in the technology and the company. Unless one had the patience to wait a very long time, it is better to invest in other growth stocks or technology. Technology sometimes take a long time to develop and become mainstream.
  2. Technology companies will offer glowing reports and many positive news as possible. Even financial publications and investment newsletters will list out many reasons to invest. The reasons can be well written and very persuasive. They can have many charts and show the growth potential. They can project the total market share and potential market. However, these can be very speculative, and it is best to be cautious of other people’s investment opinions. This why we try to provide positive and negative views on what we share in FinTekNeeks.
  3. Risk management and having a trading plan is very important. Although I had expected the stock to shoot up, it never did and I lost a bit. The stock did a 1:10 reverse split, which reduced the number of shares I owned. Unfortunately, I sold a bit too late for a loss. With hindsight being 20/20, if I had a trading plan, I may have been able to invest in more silver mining stocks, which would have yielded me significant returns in the early 2000’s.

It may be difficult to determine what is hype and what is not. With today’s valuation, one may consider the current tech stock market to be in a bubble. Our readers should take precaution in managing risk and having trading plan – whether the tech stocks decline further or rebound completely. Doing your own research is better than following gurus, following chatrooms, or watching financial television. And sometimes, timing when to invest is better than investing early. Because, the time may never come.

This article covers trading financial securities, such as stocks. The world of trading often comes with rises and declines of securities, and most things do not rise or fall in a straight line. By the time this article is published, circumstances involving what we mention may have changed. Often, changes in securities can be to the detriment to the traders – seldom is it beneficial. A person should only trade with money that they’re willing to lose because losses are guaranteed. By reading this post, you agree that you’ve read our disclosure.


  • SEB DELSON

    I read a lot about how Amazon was a sh!thole company and how they were in debt and would never turn a profit. Since 2006 I read that. To be fair I listened and never bought. I read how their balance sheet sucked etc. A vision is a powerful thing. Bezos, love him or hate him, knew what he wanted to do and pushed(s) on. It’s like drafting Tom Brady. How do you measure a companies vision of themselves. How do you know when to buy when their hearts are 10x the size of their body?

    • I’ve written in the past about Facebook. Barron’s featured the cover with FB may go even lower than $15. That marked near the bottom of FB, before FB started reporting positive earnings. Sometimes opposite of hype is given. Same argument about Tesla can be made, never made a profit, only in business because of government handouts, etc. Same can go for a lot of companies who received bailouts from the government back in 2008. There will always be opinions about how companies and their stock prices “should” behave. But we have to remember that stock price is not a direct reflection of company. The price tends to be a voting machine, where perception rules. No matter what people will talk negatively or positively about a company, people vote with their money in the stock market. If stock goes up, more people are buying. If stock goes down, more people are selling. It is simplistic, considering wall street has more money to play with than a regular investor. And central banks’ open market operations is another story that we should not get into here.
      We may get caught up on the various stories, like Jobs, Bezos, Musk, etc. We cannot truly know how “vision” will drive tremendous growth of a company. VCs only made money because they had exclusive access and other people’s money. They managed risk by betting small on hundreds of companies, and then getting a larger share of the reward when one of the companies went IPO. I am sure there are many founders who had tremendous vision. But, many of these companies fail. There are many companies who does simple things, but make lots of money.
      My journey led me to focus on price, risk management, and position sizing. All these are trend following principles. News, opinions, newsletters, seeking alpha, and even us are all noise. Fundamentals may help probabilities of a continuation of a trend, but not necessary. Making 3x more on wins and keeping losses small is a key factor. Hard to do, but many have accomplished. I believe there are simpler ways to make money in investing, even though we are disadvantaged in many ways against wall street and the finance world.

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