Do You Really Know What You’re Investing In?
November 04, 2016My kids, some coworkers, and it seems like the whole world around me are big fans of Twitter. In fact, some of the podcasts I listen to mention Twitter as the hosts’ #1 source for breaking news. I guess I haven’t ever seen that platform as one that works for me and when Twitter became a publicly traded company, I chose not to buy the stock because I couldn’t figure out their revenue model.
I also thought “speaking” in 140 characters or less was a way to degrade the way people communicate. I already despise “text speak.” Character limitations have given us degradations of the English language like UR, BRB, LOL and the worst of all possible things…emojis! (And while I’m at it, get off of my lawn!)
I am a big fan of words and grammar and punctuation. There’s a huge difference between “Let’s eat, Grandma” and “Let’s eat Grandma.” Punctuation can save lives!
With this mindset, I have been watching the world of technology companies and see that Yahoo was for sale recently and the price paid was far less than it would have been when Yahoo was one of the kings of the technology hill. Now Twitter is for sale and potential bidders keep opting out of the deal. There are fewer suitors as time moves forward and the potential sale price keeps dropping. The moral of the story for me is that just because something is cool and trendy and “everyone loves it”, it doesn’t always translate into a wonderful business model.
I’m a huge fan of Sirius satellite radio and have it on constantly. Just because I’m a loyal customer, doesn’t mean I want to be an investor. Again, cool stuff is awesome as a consumer, not always wonderful as an investor.
As you think about investing your hard-earned dollars, be very aware of the “cool effect” (not a real term, I’m making it up for this blog). Sometimes in situations like Apple and Google, a “cool effect” translates well into a cool investment that produces great returns for an extended window of time. But those are far more the exception than the rule.
One of the rules I use when evaluating if I want to invest in a particular company (which I rarely do anymore) is that I absolutely MUST understand what the company does and how they earn their money. I’m still mystified by Facebook! Do people really buy that many ads or pay for that many games? No one I know has ever spent a dime on that platform, so either I know the wrong people or I just can’t grasp what they’re doing to generate revenue and profits.
Do you know what you’re investing in? Most people I meet don’t really know where to begin to answer that question. Even at the top level of stocks vs. bonds vs. cash, most people I meet are unaware of their asset allocation. Many have no idea what it “should be” for their stage of life and goals.
If you’re like me and don’t understand how Twitter makes money and why anyone would want to buy it, let that thought make you dig into what you really do own and invest in. I’ve heard the phrase “no one will care about your money more than you” used a lot recently. Take a few minutes over the next several days and figure out what your current asset allocation is and what you’d like it to be and then take a look at your current holdings to see if there are investments that might not fit with your goals.
This investment risk profile can help you determine where you might want to be from a top level asset allocation standpoint. To dig a layer deeper, here is a fairly technical article and a practical one as well to help you evaluate your investment holdings. Remember, you aren’t investing to own the “cool stuff.” You invest for one reason and one reason only: to make your money grow over time.