Why Cardano Isn't Sexy (That's a Good Thing)
BY
FLANTOSHI
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How being boring can make you rich. The sexiest investments aren't always the best, in fact, they're likely to underperform in the long run.
This post was adapted from a thread originally posted by @Flantoshi on Twitter
If there was a list of most desirable traits to have, sex appeal would definitely be top of the list for most people, with intellect or common sense a distant second and third.
It makes sense why we do this, we're a sociable species that wouldn't be able to hack it in the wild without the help and approbation of our peers. Looking for social recognition is embedded deep into our fight or flight instinct.
Unsurprisingly, we often fall prey to group consensus and don't think for ourselves. We don't only have these biases in the social arena, but we also bring them when it's time to invest.
Just because some project is exciting, it doesn't mean that it's a good investment. On the contrary, as we will explore in this article, boring is profitable!
Boring is Profitable
A few years ago, I became a ghostwriter, and very quickly I learned there were two types of writers:
Those who earn pennies and write fun things like novels, and those who earn a fortune by writing complex instruction manuals that nobody reads.
As a general rule of thumb, the more niche, complex and tedious something is to write, the more profitable it is to produce. Not only that, but it's easier to get your foot in the door as there are fewer people who even try to get good at it.
Consequently, I niched down to things I already had experience in, which was finance and marketing. And within a handful of weeks of doing that, I got to work with names you might already be acquainted with. Then came a client who ran a crypto startup, and my life changed overnight.
I've heard of people specializing in ghostwriting all manner of bizarre things, like cat furniture reviews, and other such arcana. Point is that instead of having to compete with a universe of hundreds of millions of wannabe writers, you end up competing with a handful of them and you can charge accordingly.
The same happens with investing - the news will focus on attention-grabbing headlines, not solid business fundamentals with sober management at the helm. As such, given that people default to names and ideas they're already familiar with, they'll go with exciting investment ideas that they've heard about before. You should do the exact opposite, don't focus on something flashy, invest in projects that are relatively dull and distinctly unsexy but have high profit margins and solid business models.
Sexy investments have the danger of being very unstable and having less substance than you might expect.
Flash in the Pan
People often invest as a status symbol or to be considered part of the in-crowd. However, the problem with assigning a status symbol to an investment is that it becomes just like any other luxury good, and people become rather price insensitive.
Objectively speaking, is a Gucci bag really worth thousands of dollars? No, the mere fact that there are brand knock-offs that are identical to it but cost a fraction of the original price, should be enough to hint that there's something else afoot (especially as it's not a project dependent on R&D).
The same could be said about sexy companies like Tesla. Objectively speaking, is Tesla that far ahead of the competition to be worth basically the whole car industry, especially when it only makes 1/46th of the revenue?
Wall Street seems to disagree, as Tesla held the title of most shorted stock in the market for quite some time. In other words, investors were taking bets that the price was heading down in the near future.
Despite no longer being the most shorted stock out there, it's unlikely the financiers have altered their minds. Nothing has fundamentally changed, except the juice might not have been worth the squeeze. To quote one of the grandfathers of modern economics, John Maynard Keynes, "Markets can remain irrational longer than you can remain solvent."
Tesla's position as a sexy company allows it to break the rules and get away with it. They can overpromise and consistently underdeliver, overleverage themselves and pay it off by putting equity as collateral, etc.
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