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 $1.2M 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 dollars per share.
Just 18 months later, the stock had quadrupled to more than $68 dollars 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 dollar 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 90's 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 dollars 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 Kreme 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 dollars.
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 Dr. 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 dollars 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 dollars a day.
Snapple eventually merged with Dr. Pepper 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!