The Hot Dot

 


Investors are susceptible to new hot ideas. This week we will discuss how most ideas are not that new and how we can learn from the past ideas. The revolving door of managers shows that corporations are also looking for a new approach. Most new ideas don’t have a long life. Our examination is regarding the new ideas that are dominating the press and our social media feeds. Nothing new here. 




SPAC

It feels like everyday there is a new SPAC announcement.  The structures seem to work for the organizers, but not as great for investors.  The structure reminds me of a hedge fund structure without the SPAC providing any demonstrable acquisition expertise.  Most new ideas sound good until they aren’t.  We need to step back and examine the fine print.  I would guess that Shaquille is only expert at blocking shots not acquiring businesses.  Most athletes have proven to be poor money managers who fall prey to new restaurant ideas.  



Regulators 

While it takes longer for regulators to act we need to accept that they are following rules established to protect investors from past manias  The recent GameStop euphoria had similar characteristics to ideas created in Yahoo chat rooms in the doc com era.  Those ideas didn’t work for over 85 percent of people in the room.  Regulators established laws to protect the people in the old chat rooms.  Our compliance officers can help us prevent historic mistakes.  At the end of our day the more things change the more they stay the same .  


Good Ideas

We are now the decision makers.  While most strategic ideas will sound new. Our experience is that they aren’t as good as they sound and our compliance professional should have a senior role in our new firm to prevent these mistakes.  There will be new hot ideas, but we and our compliance directors need to evaluate the ideas and say No. Our default is to assume we have all of the answers. History has many of the answers. One solution is to hire experienced professionals and listen to their experiences. The easiest person to sell is a salesperson. I am guilty of defaulting to new hot ideas. When I examine other wealth managers I find that they are afraid of making a bad decision.  Unfortunately most technology professionals are convinced their new ideas are great. Past performance is not a guarantee of future performance. Great advisors understand this reality and your regulators understand too.  


It is difficult to outperform the markets. Especially if we fall for the New Hot Dots. 

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