What is obsession? It is defined as a mental illness characterized by extreme excitement, euphoria, delusions and hyperactivity. In investing, this translates into investment decisions driven by fear and greed without diminishing analysis, cause, or equilibrium outcomes of risk and rewards. The obsession usually runs in parallel with the business development of the product, but the timing can sometimes be skewed.
The technology.com boom in the late 1990s and the cryptocurrency boom today are two examples of how the real-time craze works. These two events will be highlighted with each stage in this article.
The idea stage
The first stage of obsession begins with a great idea. The idea is not known to many people yet, but the profit potential is enormous. This usually translates as unlimited profit, because “something like this has never been done before.” The Internet was one of these cases. People using paper-based systems at the time were skeptical of “How could the Internet replace such a familiar and well-established system?” The backbone of the idea begins to build. This translated into the modems, servers, software, and websites needed to turn the idea into something tangible. Investments in the idea stage start pale and are made by “knowledgeable” people. In this case, these might be the visionaries and the people working on the project.
In the world of cryptocurrencies, the same question arises: How can a piece of cryptocurrency replace our monetary system, contract system, and payment systems?
The first websites were rudimentary, limited, slow, and annoying. The skeptics were looking at the phrase “information superhighway” that dreamers were shouting and saying, “How can this really be useful? The forgotten element here is that ideas start at their worst and then evolve into something better and better. This happens sometimes because of it.” Better technology, higher volume and cheaper costs, better applications of the product in question, or familiarity with the product along with great marketing. On the investment side, early adopters are starting to enter, but there is no euphoria and astronomical returns yet. In some cases, the investments have yielded good returns, This is similar to the slow internet connections of the 1990s, website crashes or incorrect information in search engines. In the world of cryptocurrencies, this is seen as high costs of coin mining, slow transaction times, and piracy or account theft.
Word begins to reveal that this internet and “.com” is the hot new thing. Products are created and tangible, but due to the sheer volume involved, the cost and time spent would be enormous before everyone else could use it. The investment side of the equation begins to move forward in business development as the markets discount business potential at the investment price. Euphoria is starting to show, but only among early adopters. This is happening in the world of cryptocurrencies with the explosion of new “alternative digital currencies” and the massive media press that space gets.
This stage is dominated by the rewards and rewards that the Internet provides. Little thought has been given to implementation or problems because “the returns are huge and I don’t want to miss them”. The words “irrational exuberance” and “obsessive” are starting to spread because people buy out of sheer greed. Negative and negative risks and great neglect. Obsessive symptoms include: Any company with a name by its name is very red, analysis is thrown out the window in favor of optics, investment knowledge dwindles among newcomers, and you expect 10 or 100 returns from Bagger. Generic and few people already know how the product works or doesn’t work. This was shown in the cryptocurrency world with the stellar returns in late 2017 and company stock incidents that featured hundreds of percentage points using “blockchain” in their names. There are also “reverse takeover offers” wherein the names of fictitious, listed but dormant companies are changed to something that includes the blockchain, and shares are suddenly actively traded.
Collapse and burn
The business landscape is changing for the new product, but not as quickly as the investment landscape. Ultimately, a shift in mindset appears and a massive sell-off begins. The volatility is enormous, and many “weak hands” have disappeared from the market. Suddenly, analysis is used again to justify that these companies have no value or are “overrated”. Fear spreads and prices race down. The companies that are not winning are living on the hype and the future prospects fade away. Increasing fraud and fraud incidents are exposed to take advantage of greed, causing more fear and stock selling. Companies with the money quietly invest in the new product, but the rate of progress slows down because the new product is an “ugly word” unless profits are convincingly demonstrated. This is starting to happen in the cryptocurrency world with cryptocurrency foldable lending schemes and larger coin theft incidents. Some marginal currencies collapse in value due to their speculative nature.
At this stage, the investment scene is filled with stories of losses and bad experiences. Meanwhile, the great idea is getting tangible and for the companies that use it, it’s a breakthrough. It begins to take effect in daily activities. The product begins to become the standard and insights are cited in saying that the “information highway” is real. The average user notices an improvement in the product and starts mass adoption. Companies with a true profit strategy take a beating during the crash and burn phase, but if they have the money to survive, they get to the next wave This hasn’t happened in the cryptocurrency world yet. The expected survivors are those with a tangible business case and corporate support – but it remains to be seen these companies and coins.
Next wave – business picks up hype
At this point, the new product is the standard and profits become evident. The feasibility study is now based on profits and scope rather than idea. A second wave of investment appears, starting with these survivors and extending into another early stage of obsession. The next stage was marked by social media companies, search engines, and online shopping that are all derivatives of the original product – the Internet.
Obsession works in a pattern that plays in a similar fashion over time. Once one gets to know the stages and the thought process of each stage, it becomes easier to understand what is going on and investment decisions become more clear.