'Four Horsemen' Driving The Retail Trading Euphoria: SPACs, Stonks, Cryptos And NFTs

In the late 1990s, it was websites. In 2007, it was mortgage-backed securities. Every time financial markets get caught up in a period of temporary euphoria, there's some new type of investment that's all the rage.

This time around, the boom in retail trading in the past year has brought four new types of investments to the forefront, according to Berna Barshay, editor and research analyst at Empire Financial Research. Barshay calls these investments the “four horsemen” of the current period of heightened market euphoria and excess speculation: SPACs, so-called “meme stonks,” cryptocurrencies and non-fungible tokens.

Barshay said it’s easy to recognize these periods of what former Federal Reserve Chair Alan Greenspan famously called “irrational exuberance.” However, timing the tops in these speculative booms is much more difficult. Greenspan himself was about four years early when he delivered his irrational exuberance speech in 1996.

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SPACs And Stonks: Barshay said fear of missing out is very real and it’s difficult to resist, especially for inexperienced investors.

“Wanting to play 'meme stonks' or NFTs is tempting... They dangle the promise of getting rich quick with a side of sitting at the cool kids' table while you count your future money,” Barshay wrote this week.

Barshay said one of the most difficult things to do during market frenzies is to stick to your long-term plan. When markets trade on pure emotion, underlying company fundamentals temporarily become meaningless. However, Barshay said meme stock investors should understand that fundamentals always matter in the long term.

In particular, she said it's extremely rare for companies with businesses in secular decline, like GameStop Corp GME and Nokia Oyj NOK, to successfully overhaul their businesses.

“These companies might not be going bankrupt anytime soon, but their best days are decidedly behind them,” she wrote.

Barshay urges investors to take a similarly cautious approach to investing in SPACs. She's personally invested in a pair of SPACs, but she chose them specifically for their reasonable valuation and underlying business fundamentals, not their celebrity endorsements and social media buzz.

Cryptos And NFTs: Barshay said it's much more difficult for investors to know how to take a long-term approach to Bitcoin BTC/USD and other cryptocurrencies.

Barshay was once a cryptocurrency bear, but she has since taken a more agnostic stance. She said her ambivalence toward cryptocurrencies isn't because she questions their validity as an asset class. It's simply because there is no real way to value them, making them extremely risky long-term investments.

Instead, she prefers “picks and shovels” plays within the cryptocurrency space, such as crypto exchanges. However, she specifically mentioned Coinbase Global Inc COIN as being a bit pricey at its current level.

Finally, Barshay said she has “zero interest” in investing in NFTs at this point and sees “tell-tale signs of mania” in the NFT market.

At the end of the day, Barshay said investors buying any of the “four horsemen” asset classes are playing with fire.

“As with SPACs, I have no doubt there will be a few huge winners in the world of cryptos and NFTs... but the dustbin of history will also be littered with losers.”

Benzinga’s Take: Investors who bought high-quality stocks like Amazon.com, Inc. AMZN and Booking Holdings Inc BKNG during the dot-com bubble eventually made sizable returns on their investments. However, stocks like Amazon are the exception, not the rule. The vast majority of the thousands of SPACs, NFTs, cryptocurrencies and meme stocks will likely end up being horrible long-term investments.

"Four Horsemen of the Apocalypse" by Viktor Mikhailovich Vasnetsov, Public domain, via Wikimedia Commons