Blog: Looks can be deceiving
World markets are very difficult to predict, and predicting the fortunes of a single company or stock is almost impossible. As consumer choices determine the success of a product, and with human nature being unpredictable and inconsistent, selecting the ‘right’ stock to buy is certainly a challenge, write, Daniel McIntosh & Patrick Christie.
Many investors try to beat the market by backing new and seemingly innovative products. However, products and companies can fail for a myriad of reasons. Even where an idea, be it a company or a product, may exhibit similarities to an already successful counterpart, there is no guarantee the new development will be a success. The following ideas had every reason to be successful but were not. When reading about these, ask yourself “would I have backed that?”. They seem very attractive, but it is worth noting that in a previous blog we estimated the chances of making an “investment wonder shot” to be 1 in 420,000. These examples will show that selecting a successful product is extremely difficult!
Everyone’s memory of this strange concept is vague. Why? Because it never materialised into the globally recognisable household product many expected. With Google being one of the biggest companies in the world and having already created the universally-recognised search engine and Android phone software, many assumed any product they launched would be a success. Being a Google product alone would have been attractive enough to some investors.
Focusing on the actual product, on paper it was as futuristic as it was fascinating. A wearable with a hands-free, head-mounted optical display and a POV camera. With numerous USPs and no direct substitutes, the reasons for investing kept stacking up. If investors had the chance to invest in a product that had the potential to revolutionise human interaction with technology, it would be likely they would buy-in.
However, note the use of the word “potential”. Even now, almost eight years on, that’s all Google Glass has. The market never favoured the face-mounted wearable in the same way it did the smartphone 15 years prior. Google Glass is a perfect example of a reputable, successful company producing a product consumers simply did not like. As a result, what seemed like a great investment opportunity never hit the heights that many predicted. This illustrates how difficult it is to predict the success of a product, even if conceived by a hyper-successful company.
Prior to the publication of this blog, nobody at WealthFlow had ever heard of Quibi. Quibi was aiming to be the next globally-used social media site by placing itself between Instagram and YouTube. It was intended for sharing short to medium length videos. Quibi launched itself with Meg Whitman as CEO (former CEO of Hewlett Packard) and a star-studded cast of Hollywood celebrities as the first users/app ambassadors. In the lead up to launch, Quibi had raised over $1.5 billion in funding from investors (including JP Morgan and Walt Disney) and sold $150 million worth of in-app advertisements. It appeared to be an extremely sound investment.
However, looks were indeed deceiving. Six months after launch, the app was shut down. The company bluntly stated they saw no viable way to continue as a business and investors ultimately lost everything.
Was the idea bad? No. The concept was essentially the same as TikTok (now a huge platform with hundreds of millions of users). This clearly shows how unpredictable the market is: one version failed within six months while the other enjoyed huge success.
The reasons TikTok succeeded and Quibi failed are likely to remain a mystery, but this is indicative that consumers simply liking a concept will not guarantee success.
Companies and products fail for a multitude of reasons: strange consumer behaviour, advertising mishaps, poor management or sometimes even fraud. At one point, though, many look like a great idea, maybe even revolutionary. However, even when a product or company ticks all the boxes, it does not mean it will be a wise investment choice. Unpredictability dominates investment – and looks really can be deceiving.
Daniel McIntosh and Patrick Christie are graduate trainee financial planners at WealthFlow