Many retail investors (and not a few institutional ones) are sometimes driven by FOMO – the fear of missing out on the next Microsoft (MSFT), Tesla (TSLA), or NVIDIA (NVDA). How else to explain the mass delusion during the brief SPAC era when hundreds of blank check companies took hyped-up startups public by overpromising and under delivering? Of the dozen or so space companies that merged with special purpose acquisitions companies, for instance, only a few have not crashed and burned. And even the best among them, like Rocket Lab (RKLB), is still trading below its original market cap four years after going public.
This is why we have spent years hammering out an objective methodology for investing in emerging and disruptive tech stocks, because it is easy to get caught up in the excitement and potential. That’s especially the case when a company starts posting double- or even triple-digit growth. Remember when in 2022 a certain high-profile investment firm declared that shares of Zoom were going to hit $1,500 a share by 2026 following revenue growth of more than 300% in 2021? In the last three years, Zoom has averaged about 4% revenue growth and looks to need another pandemic or two to hit the target estimate with shares currently trading under $70. (In a future article, we’ll look to see if it’s possible for the pandemic darling to even return to double-digit growth.)
This is why we need to proceed with caution during