We've seen a rush of money going into some very hot groups lately.
Some of these are companies from China, but most are here in the U.S. In addition, plenty of money has been bet on the initial public offering market, which has been white hot. Many are believers in new or "reused" technology or processes. Always looking for the next Amazon ( AMZN) or Apple ( AAPL) , it seems right to get on the ground floor of the next breakthrough.
Big money has been made in these high flyers recently and in the past, but I see a warning out there. Don't embrace a story stock that is only riding the momentum, or you'll get severely punished. That's not to say you can't make money riding a nice trend. Momentum is a strong tonic for believers of technical signals, and can ride for much longer than anyone could imagine. But be careful, as these trends will end quickly and if you're not watching closely, you'll end up holding the bag.
One of the hottest areas of late is electric vehicle markets, or EV. Names in this group have soared in 2020 as the appeal for electric vehicles like Tesla ( TSLA) and others have attracted some sophisticated investors. It's not unusual or unprecedented, but if you believe this trend is going to be the solution, then you want to hold several names. There will be winners and losers, more the latter than the former.
But this is clearly a bubble, and as we've seen in past bubbles, when they pop, everyone around gets hurt. The excitement and enthusiasm we see today around EV, bitcoin, and biotech are common. In the late 1980s, it was a biotech frenzy, late '90s, it was the dotcom explosion. Just after that we saw a slew of money going to alternative energy. The one thing in common? Most of these companies went bust and investors who were riding the trend were helpless when the selling commenced.
It's OK to ride a hot trend, just know that these are not game-changers and won't be your next Tesla. If you get off before it's over, you've done it right.
(Amazon and AAPL are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
