Finding the next hot thing (#238)

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Around the beginning of every year we notice a strange phenomenon. Energised by the holidays and inspired to turn life into an everlasting vacation, investors start searching for the investment Holy Grail. "What is the one, hot thing that will finally liberate me from the shackles of employment?" 

The opportunity that generates the most excitement changes every year, but the pattern is the same. Newbies and impatient veterans alike flock to alternative assets, penny stocks or underdog listed companies believed to be the next hot thing.  This is an especially alarming tendency in first-time investors who have no other savings or investments to fall back on.

Some of the questions we've seen this year are:

• Is it wise to buy Aveng shares now?
• Has anyone invested in the alternative stock exchange on the JSE? If you have, how does it work ?
• I'm looking to invest in penny shares through my bank FNB, how do I go about that?
• How do you buy "Doge Coin"? I don't know a lot about it but I just wanna try it out.

What makes this question complicated is that there are sometimes hot things that run forever. By the time the rest of us wake up to the opportunity, it's over. How can we tell what has the potential to be the next hot thing and what is sure to wipe out our investment?

Here are a few tips we identified throughout the course of our conversation:

• Do you have an investment strategy unrelated to this opportunity?
• If you have an existing investment strategy, have you confirmed that this purchase fits into your long-term investment plans?
• Why are you considering this? If it's only because someone else said so, do more research.
• Can you afford to take this risk? Only consider it if you can afford to lose 100% of your money.
• Are you considering this because a company called you about it? If it were really that great, would it need a marketing strategy?
• Is it listed?
• If it's a penny stock (a stock whose share price is only a few cents), has the price been steadily increasing over a period? Remember, for something to be a ten-bagger, it first needs to be a one-bagger. 
• What are the fees on this investment? Your fees have to be deducted from your returns before you get your real return. 
• What is your investment horizon? If this is part of your long-term investment strategy, will this product be around for long enough?
• How do you get out of this investment? Some over the counter (OTC) products can only be sold under certain conditions. A 100% profit is worth 0 if you can't cash in your investment.

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Win of the week: Wesley W 

Hey Buckles (better combined name than Chubbles...) 

If one assumes a dividend yield of +- 2% and you pay foreign DWT of 30%, then the effect would be a DWT of 0.6% (30% of 2%) of your total investment. If you were to have this in your TFSA you could almost treat this as an additional cost to your TER for comparison sake. If the index did poorly and no dividend