{"id":9502,"date":"2021-04-12T11:18:57","date_gmt":"2021-04-12T11:18:57","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9502"},"modified":"2022-02-26T13:05:52","modified_gmt":"2022-02-26T13:05:52","slug":"the-perils-of-get-rich-quick-investment-ideas","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/the-perils-of-get-rich-quick-investment-ideas\/","title":{"rendered":"The Perils of &#8216;Get Rich Quick&#8217; Investment Ideas"},"content":{"rendered":"\n<p>The stock market has been posting solid gains of late, with\nthe S&amp;P 500 rising +4.4% in March and up +6.2% for the first quarter.\nMassive liquidity measures \u2013 courtesy of the Federal Reserve and federal\ngovernment stimulus \u2013 are supporting higher prices, as are rising expectations\nfor strong earnings and GDP growth in 2021.<sup>1<\/sup> My outlook remains\nlargely positive for the year. <\/p>\n\n\n\n<p>At the same time, I have been noticing a trend of investors moving\ntoo far out onto the risk curve, and I am starting to see signs of froth in\ncertain areas of the market. Investors are reaching into unproven asset classes\nlike SPACs and cryptocurrencies for extra returns, while paying sometimes\nexorbitant premiums for future cash flows. There appears to be a sense that\nmoney can be made anywhere and easily in this market, which gives me some pause.<\/p>\n\n\n\n<p>__________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_04_12&amp;content=stock_market_outlook_report \">Instead of Chasing the Heat, Focus on Key Data and Fundamentals <\/a><\/strong><\/p>\n\n\n\n<p>Many investors may have the urge to make hasty financial\ndecisions in times like these, but don\u2019t fall for the \u2018get rich quick\u2019\ninvestment strategies. While the equity market is strong today, there are\npockets of froth building up in some areas and in some \u2018alternative\u2019 asset classes.\nNow is the time to focus on fundamentals, hard data, and quality. <\/p>\n\n\n\n<p>To help you do this, I am offering all readers our\njust-released Stock Market Outlook report. This report contains some of our key\nforecasts to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>S&amp;P\n500 earnings growth<\/em><\/li><li><em>Outlook\nfor underlying U.S. economy?<\/em><\/li><li><em>U.S.\nreturns expectations for 2021<\/em><\/li><li><em>What\nproduces 2021 optimism?&nbsp; <\/em><\/li><li><em>Is\nit time to buy U.S. stocks?<\/em><\/li><li><em>Update\non U.S. fiscal stimulus<\/em><\/li><li><em>And\nmuch more\u2026<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0<br> <strong><br> IT\u2019S FREE.\u00a0<a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_04_12&amp;content=stock_market_outlook_report \">Download the Just-Released April 2021 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_04_12&amp;content=stock_market_outlook_report \">2<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>__________________________________________________________________________<\/p>\n\n\n\n<p>At Zacks Investment Management, our best defense against overt\nrisk-taking in \u2018haywire\u2019 asset classes is to do what we\u2019ve always done \u2013\nleverage research to analyze companies and deploy our ranking methodology to be\nselective in our investment approach. We do not add companies to portfolios\nbased on trends or gut feelings. Each recommendation has a check and balance\nsystem where it is fully vetted by our investment committee <em>before<\/em> we buy or sell. I do not believe enough\ninvestors are being this deliberate with decision-making in the current market.\n<\/p>\n\n\n\n<p>SPACs are a good example of risk taking that seems excessive\nin the current environment, in my view. Many readers have probably heard of the\nSPAC craze lately, so it is worth explaining briefly to you in my column. SPACs,\nalso known as \u201cblank check companies,\u201d are essentially shell companies formed to raise enormous\namounts of cash. SPACs raise the cash in order to then target and acquire\ncompanies\u2014often start-ups with flashy new products and growth profiles\u2014with the\nultimate goal of taking the company public at windfall-generating valuations. Oftentimes,\nthe companies that SPACs take public have no positive earnings or free cash\nflows yet.<sup>3<\/sup><\/p>\n\n\n\n<p>The appeal of SPACs is the same type of appeal that draws investors to\nthe IPO markets: the possibility of fast, outsized returns gained from\ninvesting in a small start-up or a company with major growth potential. But on\nthe other side of the SPAC coin is what investors should expect to encounter \u2013 very\nhigh risk and opaque information.<\/p>\n\n\n\n<p>For one, start-ups and other companies that go public via SPACs don\u2019t\nface the same constraints as traditional IPOs, particularly in the realm of\nfinancial disclosures and projections. For instance, companies that go public\nvia SPACs often tout wildly positive growth expectations, but traditional IPOs\nwould be sued by the federal government for doing the same thing. In\nthis sense, investors often don\u2019t know what they\u2019re paying for, which I think\nis problematic.<\/p>\n\n\n\n<p>Underscoring the depth of risk-taking, the\npace of SPAC money-raising has far exceeded what we saw during the IPO boom in\nthe late 1990s. SPAC issuance has been running at an approximately $28 billion\nmonthly clip, while at the height of the dot-com bubble, it was more like $5\nbillion. There is a lot more liquidity in the current environment, but this to\nme is essentially the definition of froth. <\/p>\n\n\n\n<p>I used SPACs as an example here, but the goal\nof my column this week is to remind investors to be cautious around any trend setting\ninvestment idea or asset class. Don\u2019t get lured into the \u2018get rich quick\u2019 ideas\nof the moment. You can reach your long-term goals by focusing on quality and\nadhering to a disciplined approach like we do here at Zacks Investment\nManagement. In the current environment, I believe research-based,\nfundamentally-driven investment ideas are as important as ever. That\u2019s how we approach\nmanaging money. <\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\n<p>My goal here is to remind readers to take extra\ntime to scrutinize what\nyou invest in and know what valuation you\u2019re paying for future cash flows. In\nsome cases, a SPAC investment may mean <em>investing\nin companies that have yet to generate\npositive cash flows<\/em>. That\u2019s not a very sound long-term strategy, in\nmy view.<\/p>\n\n\n\n<p>We manage client portfolios based on\ninvestment goals, and we drive our decision-making process based on research.\nThe equity market is strong today, but there are pockets of froth building up\nin some areas and certainly in some \u2018alternative\u2019 asset classes, in my view. To\nme, that\u2019s a clear indication to redouble focus on fundamentals and quality. <\/p>\n\n\n\n<p>To help you focus on fundamentals, I am offering all readers our<a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_04_12&amp;content=stock_market_outlook_report \">\u00a0<\/a><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_04_12&amp;content=stock_market_outlook_report \">Just-Released April 2021 Stock Market Outlook Report.\u00a0<\/a><\/strong><\/p>\n\n\n\n<p>This report looks at several factors that are producing optimism right now and contains some of our key forecasts to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>S&amp;P\n500 earnings growth<\/em><\/li><li><em>Outlook\nfor underlying U.S. economy?<\/em><\/li><li><em>U.S.\nreturns expectations for 2021<\/em><\/li><li><em>What\nproduces 2021 optimism?&nbsp; <\/em><\/li><li><em>Is\nit time to buy U.S. stocks?<\/em><\/li><li><em>Update\non U.S. fiscal stimulus<\/em><\/li><li><em>And\nmuch more\u2026<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<br><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Unproven investment classes like SPACs and crypto are luring investors, but carry extreme risks<\/p>\n","protected":false},"author":3,"featured_media":8874,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[71],"tags":[],"class_list":["post-9502","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9502","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9502"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9502\/revisions"}],"predecessor-version":[{"id":10416,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9502\/revisions\/10416"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9502"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9502"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9502"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}