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🔥 Investing in hot trends

May 06, 2021 Sign up
TOGETHER WITH Finny

Happy Thursday everyone! According to Warren Buffett recently, can you guess what the biggest danger a company faces is? Check out the trending section below for the answer.

Here are our money topics for today: 

  • Investing in hot trends: just a phase or is there real value here?
  • What’s driving the global economy? Is it sustainable and how to plan;
  • A buyer’s market: some places where home prices haven’t skyrocketed yet.

INVESTING

Investing in hot trends: just a phase or not?

Being a bandwagon fan is often frowned upon in the sports world. Being a longtime supporter is something to be proud of, and is a natural derivative of our love for loyalty and trust. We don’t like when others join in only when it seems like it’s a team’s time to shine, and understandably so. 

Finance is no different, and you’ve seen a lot of this traditionalist mindset come out of the woodwork this year when skeptics heap dissent on the naive newbies who intend to send AMC Theatres to the moon on no fundamental basis and just hoping for a short squeeze.  This is the definition of trends investing, and as stupid as it sounds in some cases, it can be a very lucrative strategy.

A thoughtful whim: trend investing can be logical

Investing in trends is not just limited to going on Reddit to commiserate with your fellow apes and discuss the diamond hands you have for $GME. Trends extend to many other viable investments too. Emerging markets, value investing, green energy, EV transport, aerospace tech, 3D printing, aging demographics—we could go on. These are all viable investment strategies that also happen to play a quantifiable role in the future of our economy. 

Jumping into emerging trends is not always a sign of naiveness and gullibility, but can actually be indicative of a sense of opportunity. Trend investing is establishing itself as a valid strategy, and this is being solidified by the fact that entire funds are being curated just to capture certain up-and-coming markets and industries.

Trends formalized: ETFs, but a little less boring

Amplify Investments, whose ETF arm specializes in creating various funds and currently manages over $4.7 billion in capital between them all, intends to capitalize off of this movement by creating the epitome of a trends ETF, launching their new “Thematic All-Stars ETF” at some point this year. 

The index will consist of 160 stocks, with no one allocation exceeding 5% of the total portfolio. The fund will focus on getting to the core of trending industries such as fintech, health care innovation, sustainability, disruptive technology, and more, attempting to capture all trends in one and distill the waters.

Amplify isn’t alone

Prior to this, 2021 has already welcomed the filing of an ETF literally given the name FOMO, which seeks to offer investors wide access to asset prices that were pushed higher through the fear of missing out. When it launches, it will invest in social media, hedge funds, SPACs, ETFs, stocks, and more. Van Eck also launched the social sentiment ETF, called $BUZZ which attempts to track stocks that are receiving the most positive social media limelight. 

All of these examples come to us without even mentioning Ark Invest’s plethora of innovation-oriented indexes such as $ARKK, $ARKQ, $ARKX, and others that have grown to become some of the world's most popular investment strategies.

So, maybe give trends a chance 

All that being said, trends aren’t something to be written off completely solely on the basis of their novelty to the world or their unfounded basis. There is the value of a company, and then there is the stock market. They often operate as independent entities, with one being based on numbers, and the other reliant on social proof and feelings. 

Feelings make money too.

ECONOMY

What’s driving the global economy? Is it sustainable?

Last March when the markets experienced several flash crashes, some of you may have thought you were about to experience your very own Black Tuesday moment. Luckily, this was 2020 and not 1929, and we have rules and measures in place to stop falling knives like that from happening. Supposedly. 

Since then, the economy has come full circle and done so rather quickly considering how uncertain prospects of the next 12 months seemed about 14 months ago. With a V-shaped market recovery that led right to all-time highs and a retail investing revolution coming in the 4th quarter of the year, finally getting a vaccine available to Americans, and a year passing, it seems now that the economy is healthier than ever. But is it?

Recent stats: what’s driving the growth? Here’s the good.

  • Gross domestic product increased 6.4% in the first quarter, up from the 4.3% increase we saw to finish off 2020. Adjusted for inflation, the annualized value of goods and services produced domestically equals out to $19.1 trillion, meaning the country is nearly on par with where we were pre-pandemic. 
  • Markets are also still making new highs almost weekly, job growth prospects seem to be optimistic, vaccination rates are rising, and not to mention the housing market is white-hot. All of this culminated into another rising metric, with personal consumption growing to an annualized rate of 10.6%, a rate we haven’t witnessed since the 1960s. 
  • Government spending has also obviously increased, Biden has proposed more spending as well, enumerating the infrastructure plans, aid for families, and changes to the tax code as the priorities. 

But there's also the bad. The country is also experiencing all-time levels of debt, new investors are pouring into the markets faster than ever, and stocks are trading at insanely high P/E ratios, historically speaking.

What this means for us

All of this culminates to put the economy back on pace to top its pre-2020 levels in terms of real GDP, and optimism generally abounds, at least for the moment. The Fed is keeping its easy money policy for the time being, disposable income is rising, and, as we said, stocks are at all-time highs. So, what do we do with this?

  • Keep a healthy amount of wariness: Most of what we’ve just gone over may sound great, but there are also valid points being made when bearish analysts point out things like the Buffet Indicator redlining higher than an Italian V10, and acknowledging the amount of overleveraged debt we have right now. No one knows how long the markets can keep this up. Sure, we could see a correction or we could see more highs for the next 2 years.
  • Don’t stop investing: No matter how the markets or the economy is doing, it's impossible to time the market. Time in the market is what prevails when it comes to investing for the long term. 
  • Follow your strategy and adapt accordingly: Sticking to one worldview in perpetuity isn’t good for a life strategy or a market one. Looking at things objectively and subtracting your bias will enable you to make sound decisions regardless of whether the economy is crashing or going to the moon.

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REAL ESTATE

A buyer’s market: some places where home prices haven’t skyrocketed yet

By Alice Morgan

As you may have heard on the news about 50 times recently, housing prices are moving. They’re moving in a good way for sellers, and in a bad way for buyers, with prices shooting northward over the last year thanks to a  combination of factors. 

The US is experiencing a housing shortage, and simultaneously an increase in demand for homes. More people are moving too, and all of this has resulted in a market where the stakes are high for buyers, and bidding on a home feels more like bidding at an auction. 

Fortunately though, if you know the right people and places to look, prospective homebuyers can still find solid options in good locations where home prices have yet to move skyward in reaction to market factors. Here are just a few of those places below.

  • Miami, Florida: Miami is dealing with a bit of an elevated housing supply, maybe they should blame the “Florida Man” trend on social media? Although not the cheapest real estate market, with a median sale price of $365,000 and a one-year change of only 10.5%, Miami is a surprisingly under the radar place to settle down right now considering its reputation.
  • Rockford, Illinois: Only about 100 miles from Chicago, Rockford boasts a viable insurance and high-tech manufacturing industry, as well as being the location where two of the midwest’s busiest highways intersect. With an average sale price of just $114,000 and a one-year price increase of 10.6%, this could be a rural midwesterner’s dream.
  • Tulsa, Oklahoma: Tulsa is the same city offering remote workers $10,000 just to move there. So, not only can you get a home for a median price of about $192,000, you can use that bonus of $10K towards your downpayment.
  • Spokane, Washington: Inventory in Spokane isn’t overflowing, but that should be understandable considering the cinematic beauty its residents enjoy. Despite the short time on the market, homes in this town remain a reasonable $309,000.

Honorable Mentions. Hartford, Connecticut; Virginia Beach, Virginia; Albuquerque, New Mexico.

✨ TRENDING ON FINNY AND BEYOND

  • ANSWER: According to Warren Buffett recently, the 'biggest danger' a company faces is picking the wrong CEO (Yahoo!)
  • Which sectors of the US stock market are NOT running hot?  Check out the market scanner (Finnyvest)
  • Why rich people actually rent rather than buy a $10M house (Medium)
  • Tough Cluck. Fried-chicken craze is causing the US to run low on poultry (Seattle Times)
  • We paid off $250,000 in debt and grew our net worth to $800,000, here’s our best advice (Acorns + CNBC)
  • Finny lesson of the day. With all this chatter about real estate, take this 5-minute lesson on Real Estate Investing FUNdamentals:

Finny is a personal finance education start-up offering free, game-based personalized financial education, a supportive discussion forum, and simple stock and fund tools (aka Finnyvest).  Our mission is to make learning about all things money fun and easy! 

The Gist is Finny's newsletter to our community members who are looking to make and save more money, protect their finances and be their own bosses!  It's sent twice a week (Tues/Thurs). The editorial team: Austin Payne and Chihee Kim.

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