2) Fad investing is more emotional than real investing, and the probability of failure is much greater. Fad investing is not tied to profits. The results of fad investing are analogous to gambling: that is, a few investors make sudden windfalls, but most lose. Simply put, the odds for fad investing or gambling are against achieving a successful return-on-investment.

3) Fad investors do not understand the consequences of fad investing. Since fad investors place the odds against their own success, the result is a very large number of fad losers compared to the number of real investor losers.

4) Unfortunately, fad investors are so busy looking at the sky for their future appreciation that they forget to look down and ask the most important question an investor can ask: “If I’m wrong, how much money can I lose?”

All investors should seriously consider whether they are real investors or fad investors. The following two lists should help distinguish the differences between real investors or fad investors. The first identifies the primary characteristics of real investing. The second identifies the primary characteristics of fad investing. The characteristics cited in each list pertain to every type of investment. To apply these characteristics to real estate, substitute:

• Rent for sales
• Lessee for client and end user
• Real estate for company
• Owner for management
• Construction for manufacturing
• Space for product and inventory
• Mortgages for capital

Characteristics of Real Investing

• Within the context of legality and morality, profit is the primary consideration for all of the company’s decisions.
• Projections concerning the company’s sales, earnings, market share, etc. do not set new historic records for either percentage or dollar increases. They are within comparable historic averages.
• The company’s management team is experienced in its related responsibilities, and has lived through more than one economic cycle.
• The company’s projections are not based on a straight line of increases into perpetuity.
• Management recognizes that our economy is cyclical, and it doesn’t always go straight up.
• Bottom-line losses are considered a failure.
• Bottom-line losses may be explainable, but they are unacceptable.
• Methods used to determine value are historic and are related to profit.
• There is a concern for the client’s use and need of the company’s products and services.
• There is a concern for the performance ability of the company’s products and services.
• Precautions are taken to ensure manufacturing and delivery of the company’s product.
• The availability of efficient capital is not presumed to go on into perpetuity, and preparedness is incorporated into the company’s plans.

Characteristics of Fad Investing

• The traditional methods used to evaluate a company don’t justify the company’s present value.
• The concept of profit takes a back seat to market share, product design, etc.
• Most of the methods being used to determine value have no relation to profits.

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