Manias and fads often drive the initial public offering (IPO) market, which loves to highlight the “next big thing.” But in the long term, fads eventually fizzle out, leaving loyal investors with huge losses.
A fad is a gigantic trend that sweeps the nation, if not the world. As described in Charles Mackay’s classic book, Extraordinary Popular Delusions and the Madness of Crowds, sometimes people stampede to buy a product that is of questionable value. But a fad is short-term, lasting several years at most. The masses eventually become bored and move on to something new.
This reality does not mean that you should never invest in fad IPOs. After all, you have the potential to make a lot of money very quickly. In fact, you can ...