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Afterpay, Tesla, Nikola and FOMO

It is to be expected after one of the largest speculative rallies in history that FOMO (fear of mission out), becomes common.

This is the golden age of fraud (Jim Chanos)

This is the most dangerous of times for those that don’t know what they are doing. Buying companies that don’t earn money and may never earn money is extremely risky and many have been caught up in the speculative mania.

The smartest people in history have destroyed their finances by being swept up in manias. Sir Isaac Newton who was the first to describe the force of gravity, wasn’t able to work out the gravity of speculative manias. He lost his money in the South Sea bubble.

And so, we find ourselves in the “golden age of fraud”, where loss making business are being put on a pedestal (Afterpay), fake businesses trade for tens of billions (Nikola) and companies trade for such high multiples of their earnings that they will likely never provide reasonable returns for shareholders (Tesla).

“Disruption” is the key phrase of the day. Sadly, many of the so-called disrupters are nothing more than negative margin businesses doing the same as the existing businesses. If potatoes cost $2 a kilo to grow, selling potatoes for $1 a kilo is not a disrupting business, it is economic suicide. Raising capital every 6 to 12 months to keep this folly going will one day not work.

Until then, the party continues.

Your goal as an investor is to remain rational and avoid the folly.


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