How Do You Know What to Look for When Investing in an Emergent Industry?
Investing in emergent industries can be a great way to make a ten-fold return on your initial investment. But picking lucrative investments in these markets can be hard. Some of today’s emerging industries like big data, cryptocurrency, digital payments, and the cannabis market all have the potential to offer lucrative investments if you know where to look. Keep these tips in mind when investing in any emerging market to keep yourself safe.
Watch the Hype
Emerging industries have captured the attention of the media thanks to their revolutionary approach, but since most of these are designed to disrupt current trends, plenty of media attention is given to these disruptors. It’s essential to know how the cycle of hype can create a boom and bust cycle. You don’t want to be caught investing in one of these as it matures and growth slows.
The hype cycle starts with a few early adopters who evangelize the product to others. As the industry develops, people realize the service or product is solid, and stocks go up. As the industry grows, mainstream media highlights this growth and the promises companies in the industry are making. This cycle repeats as the industry matures and can easily be spotted by seasoned investors.
Have A Long-Term Perspective
It can be tempting to jump into an emerging industry with no knowledge just to reap those early investment opportunities. But you should always be thinking about your investment as a long-term opportunity. For example, investments in the cannabis market are booming right now as legalization becomes a national topic. But the emerging industry creates a lot of plastic waste in the name of safety. These issues will likely come to a head as the cannabis opportunity matures, especially after federal legalization. GGB’s Ed Kistner highlights what cannabis companies ought to be striving for when it comes to sustainability for long-term growth.
Watch the Industry
It can be tempting to invest the moment you feel hype rising for an emergent industry. But you don’t have to be the first investor guinea pig to reap the rewards. The hype cycle can create over-valuation as it starts to grow, which smart investors rightly stay away from. Invest in companies when you feel like they have a solid, long-term game plan for the niche. Looking at the dotcom boom of the early ’90s, where so many investors kept their heads down when those companies went public. They were right to do so because of the eventual bubble burst, and many of those companies are defunct 20 years later.
Do your research and make sure you have some knowledge of the company you’re considering and look to see what the competition looks like. No one could have predicted that an online book store in the ’90s would end up being the world’s biggest online retailer in 2019. But Amazon revolutionized shipping logistics and made itself a household name in return. If you can’t pick a reliable company to get behind, consider industry ETFs as a starting point until you learn more.
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