Amazon first hit the public markets in June of 1997 as a humble online book retailer,
but it didn’t stay that way for long.
They now control 40% of U.S e-commerce, 40% of the cloud-computing industry and they even
operate a major Hollywood production studio,
If you had invested just $1,000 dollars in Amazon back in 1997, that investment would
have been worth over $1.2 million dollars in August of 2018.
That’s a whopping 120,000% profit in 21 years!
Every investor dreams of getting in on the ground floor on a success story like this.
But if buying low and selling high is the touchdown, most of the investment world is filled
with people fumbling the ball left and right.
Thankfully failure is often the greatest teacher so let’s see what lessons we can learn from
5 of the stranger fad investment crazes in recent history!
It’s 1993, and while I was doing the Running Man to “Whoop, There It Is"
The Ty Toy Company launched its newest creation: a deliberately under-stuffed toy animal called a beanie baby!
Flash the Orca and his 8 original compatriots showed up on shelves and quickly found themselves
in the midst of beanie-mania.
There were beanie baby magazines and scores of busted counterfeit rings!
One couple even had to divvy up their beanie baby stash before a judge as a part of their
divorce settlement.
This particular craze is unique because it was the result of a carefully crafted strategy
by the toy company itself! Ty Warner, the eccentric billionaire owner proved himself
a master manipulator of supply and demand.
He refused to sell large orders to big box stores, instead only selling small, controlled
amounts to independent retailers.
New versions would get retired only a few months later, prompting buyers to panic and
rush the stores.
But Warner knew the bubble wouldn’t last and in 1999 the company promptly announced
they were discontinuing.
And while Ty himself won out out to the tune of a few billion, many adults who bought in
lost their heads and their wallets, sometimes spending thousands for a single toy.
Bottom line: Collectibles as an investment class are extremely volatile.
Only collect stuff you truly love for its own sake.
Style guru Tim Gunn once called the Croc shoe a “plastic hoof.”
And while your fashionista cousin might have wanted to light them on fire, investors got
pretty fired up when they started noticing some massive numbers.
In September of 2006 the Crocs company IPO’ed around $17 per share.
Just 18 months later, the stock had quadrupled to more than $68 a share.
But then came the great recession and share-holders found themselves crying into their clogs as
the stock bottomed out at a dismal $1.21 a share.
And while it has recovered somewhat since then, thanks to a very important british toddler
named George, it’s never even come close to its initial heights.
So remember, explosive growth, while exciting, is more often than not a major red flag of
unsustainability.
Speaking of explosive growth, a beloved regional donut chain called Krispy Kreme decided in
the late 90s to go public and start expanding across the nation.
Under the ambitious CEO Scott Livengood, the company went from just 95 stores in 11 states
to 367 stores in 38 states.
In just two years their reported net revenue skyrocketed by 442%.
At one point, the number of donuts they made per week could stretch from New York to L.A.
Krispy Kreme artifacts were even added to the Smithsonian museum!
But it wasn’t long before cracks started to show up in the icing.
It started with some low earnings reports, and in 2004 an SEC audit accused the higher-ups
of channel-stuffing.
That’s when a company forces unneeded product on stores to inflate sales numbers.
After it was revealed that their profit reports were off by around $25 million in the wrong
direction, the stock lost around 80% of it’s value and CEO Livengood was promptly booted.
So don’t forget, competent leadership really matters!
And if the numbers look too good to be true, there might not be any real dough beneath
the glaze..
Funnily enough, that Krispy Kream CEO famously blamed our next entry for his company’s
demise.
In 1997 Dr. Atkins' New Diet Revolution became a New York Times bestseller and remained there
for five years.
At the height of it’s fame, 1 in 11 american adults reported themselves as following a
low-carb diet.
So it seemed to make sense that Atkins Nutritionals, was poised to profit big from their proprietary
line of low-carb snacks and shakes.
But the famous founder died in 2003 following complications from a fall.
Probably didn’t help when it came out he also had a history of congestive heart failure
and hypertension.
By the mid two thousands, the diet had run its course and in 2005 they filed for Chapter
11 bankruptcy after reporting a loss of $340 million.
Even though the company is still around, it’s become something of a hot potato, or sorry...meatball...changing
hands numerous times.
Apparently it’s current owner has been trying to sell it since 2015, with no takers.
Even though the low-carb movement is still around, cyclical industries like dieting are
notoriously fickle and no place to look for long-term returns.
Speaking of carbs, let’s look at a “healthier” alternative.
An apple a day keeps the doctor away, right?
And in the 90’s investors were hoping the Snapple brand would add a healthy boost to
their portfolios.
Their wholesome-feeling branding combined with a funny, unorthodox spokeswoman nicknamed
“The Snapple Lady” led to an all-out takeover of the beverage market.
But when the company went public, most of the money raised by the offering wasn’t
put to work growing the business but rather went to pay off debt and line the pockets
of their executives.
When the Quaker Oats company purchased Snapple to the tune of $1.7 billion in 1994, a lot
of analysts considered it way overpriced.
And it turned out they were right.
It was re-sold in 1997 for just $300 million.
Equating to a loss of roughly $2 million/day.
Snapple eventually merged with Dr. Pepper brand and is trying once again to capitalize
on their absurdist humor.
But people read ingredient labels now and turns out “the best stuff on earth” is
basically as sugary as its big-soda counterparts.
Even the best branding on earth can only float a company for so long.
TV and the internet are filled with people trying to convince you to hop on bandwagons
left and right.
And while investing is a key to growing wealth, hopping from fad to fad is fraught with danger.
Even seasoned experts get it wrong more often than not.
So if you’re really not the buy-and-hold type, don’t let FOMO get the best of you!
Start small, commit to becoming a ruthless researcher and strap in for a wild but hopefully
fun ride.
And that’s our two cents!
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It tackles big questions: What if there were no states? Should we lower the voting age?
Should we colonize Mars? It’s like the best civics class ever.
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Have you ever invested in a fad? Or are there some that we missed? Let us know in the comments!