Numbers don’t lie. But the Hype?
One of the questions I’ve been asked most often over the past few weeks has been, “What do you think about this certain IPO?”
Sometimes, it’s not an IPO. Sometimes it’s cryptocurrency. Sometimes it’s the latest prediction market. Sometimes it’s a company that seems to be everywhere in the headlines. Regardless of the supposed opportunity in question, the underlying theme almost always feels the same:
Am I missing out?
It’s an understandable concern. We live in a world where financial news moves at lightning speed. Social media feeds are filled with stories of overnight success, massive gains, and people who appear to have found the Next Great Thing. Every major IPO is described as a “once-in-a-generation” opportunity. Every surge in Bitcoin sparks another round of stories assuring us that this time is different. New “prediction market” platforms now even allow people to speculate on everything from sports to elections to economic events, all promoted under the banner of investing!
Sadly, the research on prediction markets shows that the average participant loses a greater percentage of their money than even someone betting through a traditional sportsbook. While these platforms are often marketed as innovative financial products, in function they are nothing more than a form of sophisticated gambling.
This situation brings to my mind the phrase: Numbers don’t lie… Hype does (as a disclaimer I should add that I can’t find a source for this phrase, but it definitely applies).
It’s a simple statement, and it explains much of what we see happening in today’s markets.
The reality is that most people aren’t drawn toward speculative investments because they’re being irrational. Perhaps we are drawn toward them because life feels expensive. Housing costs continue to rise, and retirement feels elusive.
Many people quietly wonder whether traditional investing can still get them where they want to go. A diversified portfolio earning steady long-term returns doesn’t always feel like the answer when times are tight, AND the information onslaught tells us that someone else appears to have doubled their money overnight.
This is when hype becomes most powerful.
Hype sells the idea that there is a shortcut. It tells us that if we simply buy the right IPO on the first day, purchase the latest cryptocurrency before it takes off, or place the right prediction, our financial worries will disappear. It appeals to something very human: the desire to solve long-term challenges with a single great decision.
Unfortunately, building wealth has never worked that way.
True investing has always been rooted in ownership. When you purchase shares of a company, you’re becoming an owner of a business that produces goods, provides services, employs people, and generates profits.
Speculation is different. Speculation depends far less on what an asset actually produces and far more on what someone else might be willing to pay for it later. This is known as the “greater fool theory”. Relying on a “greater fool” to come along isn’t investing.
In fact, speculation is often anchored in emotion.
Investing always involves making decisions about an unknowable future. This uncertainty can allow our brains to take another shortcut and conflate speculation with investing. The difference is that investing attempts to estimate that future based on evidence, business fundamentals, and probabilities. Speculation ignores those foundations altogether in favor of headlines, hope – and, of course, hype.
Sometimes wonderful companies become extraordinary investments, and sometimes even wonderful companies become disappointing investments. When this happens it is usually because investors paid too much due to the excitement surrounding them.
This is one of the reasons we spend far more time evaluating substance than headlines. We aren’t trying to ignore innovation or dismiss exciting new businesses. Some of today’s most successful companies were once viewed as ambitious long shots. Rather, we’re trying to understand what actually creates lasting value. What are the underlying economics of the business? What cash flows might it generate? How resilient are those earnings? Does the price provide a reasonable “margin of safety”?
While hype often lies when it comes to investing, it certainly doesn’t stop there. Social media has become a constant comparison engine. People traveling the world, buying new homes, driving new vehicles, seemingly celebrating financial wins. Whether we realize it or not, those images shape our expectations about what our own lives should look like.
We feel pressure to keep up. That pressure may have a lot to do with why the hype starts to look attractive. Combine it with the “next new thing” promising extraordinary returns, and we really want to believe that finding the next big winner is the answer.
The truth is that building wealth still comes down to consistently spending less than you earn, saving regularly, owning productive assets, and letting time do the heavy lifting. There has never been a substitute for patience, nor a single investment that permanently replaced discipline.
Will there always be someone who makes extraordinary returns from a single investment? Absolutely. Looking backward, every generation can identify companies that produced remarkable wealth for early investors. What we often forget are the countless others that generated excitement, attracted enormous attention, and ultimately fizzled.
While markets can reflect the emotions of investors, stories can change overnight, and headlines can disappear just as quickly, one thing tends to remain remarkably consistent over time: Numbers don’t lie. Hype does.
