Resisting the Temptation of Trendy Investments

Resisting the Temptation of Trendy Investments

Progress is not achieved by luck or accident, but by working on yourself daily.


Trends in Nutrition

In the nutrition space, there is always something new to capture your attention. There are special diets, secret ingredients, or tactics that marketed to the masses in an attempt to get them to purchase something, often at a premium.

Once the initial buzz wears off there is always another new nutritional breakthrough and the marketing cycle repeats. People float from one trend to the next without ever making any lasting progress. Any results they do get are often short-lived or due to other underlying lifestyle changes, they made during that time.

Successful dieting is simple, but far from easy. The boring principles of consistency and hard work are not appealing when there are quick fixes to their issues. Anyone who tells you otherwise may have a vested interest in trying to convince you there are.   

Trends in Investing

A recent entitled Competition for Attention in the ETF Space by Ben-David et al. looked at a similar thing taking place in the investing space, where there were two kinds of exchange-traded funds (ETFs) being released.

Broad-based ETFs that generally hold low-cost, diversified (boring) portfolios and specialized ETFs that offer trendy themes and generally hold less diversified portfolios. The results in the paper suggested the trendy ETFs fail to add value but rather are launched to capitalize on a recent investment theme that has sparked the interest of unsophisticated (small) investors.

The paper stated the buzz around these specialized ETFs soon fades and they are then replaced by a different fund that attempts to capitalize on the next investing fad. Meanwhile, institutional (large) investors tended not to invest in these specialized ETFs but rather choose to invest in the low-cost diversified ETFs (Ben-David et al.).

The “Secret” to Investing

Successful investing like dieting is simple, but far from easy. The uniformed consumer often thinks there is a large amount of skill and specialized knowledge required to be successful. The reality is after learning the fundamental principles of investing, success is more a result of the investing process they follow, their ability to be self-reflective, and learning from their past experiences.

They likely found an approach that works for them and follow it diligently rather than spotting the next big trend and capitalizing on it. Some may consult investment experts for advice, but they do so for guidance on their journey and not for a shortcut to the finish line. 

Attention is a scarce resource and competition is often fierce in investing space. The idea that investing is not meant to be exciting, and you should get “rich” slowly does not create mass appeal. This leads to trendy products being pedaled to the uneducated consumer audience. These products tend to be more expensive and less effective than a less flashy alternative.

Understanding the fundamentals and following an approach that works for you will likely result in more meaningful outcomes than any single product could.

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