Flavor of the Week

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Inflation Tracker
Former hedge fund analyst turned private investor and GRIT content whizz by night, I bring you top-notch stock ideas in my weekly newsletter.

Flavor of the Week

Hello friends, my name is Jack Raines. I will be writing on Alpha’s platform once a week. Ialso write a newsletter, Young Money, where I cover all things investing, finance, and careers. You can check it out here. Hope you guys enjoy today’s piece!

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I went viral on Twitter last week. Not in an "OH WOW 500 PEOPLE LIKED MY TWEET," type of way, but in a "427,000 people liked my tweet, and 26,214,756 people saw it" type of way.

That's a lot of eyeballs. What was the tweet, you ask? A way-too-sarcastic thread (string of connected tweets) outlining how our alphabet works. See below for my Mona Lisa.

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Twitter has 238M monetizable daily active users right now, meaning that ~10% of regular Twitter users saw this tweet.

That's insane reach.

The irony of this tweet is that it was actually making fun of a recent engagement bait trend on Twitter, where people will write a lame clickbait headline to entice people to read the tweets that follow.

The end goal of this latest Twitter fad is funneling traffic to one's newsletter, website, product, course, business, whatever. A few examples that I've seen in the last week:

  • "9 Things you didn't know your Mac could do"

  • "14 dirty little secrets that will quadruple your productivity (I’m not joking)"

  • "Millions of students are returning to school this week, but these 10 Online Courses will teach you more than any $100,000 Degree"

What follows this "hook" is a list of things that could be found on the first page of Google search results, concluding with some message that says, "if you liked these tweets please follow me and subscribe to whatever thing I'm promoting."

No, I'm not going to link to the actual tweets. They don't need any more engagement lol.

The thought process is pretty straightforward: win the viral Twitter engagement "game" and funnel some percentage of that traffic to your other thing. It's expedited audience building.

This isn't just a Twitter thing. Across TikTok, Instagram, and Linkedin, users are constantly playing hot trends to win the engagement game. Everyone wants to ride the flavor of the week. And this method certainly appears to work, in the short-term at least. Millions of views, thousands of clicks.

As someone whose livelihood is literally determined by how many readers I have, I understand the temptation to play this game.

But short-term games have long-term consequences, and focusing on the wrong metrics can be detrimental to anyone, from the writer, to the entrepreneur, to the investor.

Foundational Issues

In the Bible, the seventh chapter of Matthew tells the parable of the houses built on sand and rock.

24 Therefore everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock. 25 The rain came down, the streams rose, and the winds blew and beat against that house; yet it did not fall, because it had its foundation on the rock. 26 But everyone who hears these words of mine and does not put them into practice is like a foolish man who built his house on sand. 27 The rain came down, the streams rose, and the winds blew and beat against that house, and it fell with a great crash.

  • Book of Matthew

Sand is moldable and light. Structures and foundations made of sand can be built in a matter of hours.

Rock on the other hand isn't malleable. It is stiff, heavy. Foundations made of rock may take months, or even years to build.

But things easily built are just as easily destroyed. A strong gust of wind or a powerful torrent of rain can wash away the most impressive sand structures in minutes. It takes thousands of years for the elements to wear down rock foundations.

This concept of strong foundations is relevant to far more than just structural engineering.

The writer who focuses on hot trends, whether that means using Twitter and Linkedin "growth hacks" or writing sensationalized articles, can grow an audience quickly. But your audience isn't following you for your unique perspective, your voice, or your quality of content. They are following you because you briefly captured their attention through a clever trick.

And what happens after a week, a month, or a year, when your superficial hacks lose their luster and you have to rely on your content alone to keep readers interested? They leave. Or at least stop reading your stuff.

The founder whose company only grows through cash-incinerating promotions, such as free-play for sportsbooks and subsidized grocery-delivery fees for online grocers, isn't building a sticky customer base that can yield a profitable business. They are attracting conditional shoppers, many of whom will disappear if they have to pay full price for the services. Sure, you can quickly build a large customer base, but how many of these customers will actually pay for your product?

Audiences and customer bases quickly scaled from cheap tricks are fickle. Once the bait used to attract them is removed, many of them will disappear. Houses quickly built on sand rarely survive the storm.

But what about the writer who focuses on the quality of his content? Who resists the urge to hop on the latest social media trend? Who, day-by-day, quietly adds dozens of subscribers?

What about the founder who invests thousands of hours finding a sustainable product-market fit, instead of using free money as an incentive for "users?" The CEO who sacrifices short-term growth for longevity, who focuses on a viable business model over quick marketing gimmicks?

They have staying power. Readers who fall in love with your writing are investing in you, the writer. Their loyalty isn't reliant on your ability to trigger their dopamine receptors. Customers who find that your product gives them real value, vs your promotion giving them free money, are likely to stick around. They might tell their friends about your service. And they don't cost you a dime.

Easy come, easy go. Slower, quality growth takes longer to build, but it is much more difficult to destroy.

And yes, this concept applies to the investor too.

What Do You Think about Investing in _____?

As someone who writes about finance (kind of?), I receive a lot of investing questions. Here are a few from the last year.

  • What do you think about Lucid Motors' (EV startup) stock?

  • Disney+ is killing it, should I buy Disney stock?

  • How do I invest in NFTs?

  • Isn't Ethereum a no-brainer crypto investment?

  • Which SPAC should I buy (admittedly, I brought this one on myself)

  • Aren't weed stocks a good buy?

  • Have you heard of Snowflake?

  • What do you think about XYZ growth stock?

The commonality across all of these questions is that they all came *after* the asset in question had a 100%, 200%, 1000%, whatever % melt-up within a year or so. Logically, it seems absurd that people would continue to pile in after these assets go nuclear, but this euphoric cycle is the blueprint for every bubble ever:

  1. A few people know about an asset, and they buy it

  2. More people buy it, and word spreads

  3. The general public takes an interest in this asset as it goes mainstream

  4. "Investors" who know nothing about the fundamental value of the asset in question but want to make a lot of money really quickly from this asset because they are experiencing FOMO due to the fact that the people mentioned in step 1 got rich overnight begin asking "what do you think about _____?"

  5. Group 4 gets saturated as new money slows down, most "investors" bought the top because buying a trendy stock after it has appreciated by 600% in 6 months is typically a bad idea, and they lose a ton of money

  6. This process repeats with a new cycle, where another group of investors will pile in at the worst possible moment and lose a lot of money

This isn't some secret phenomenon: in the last few years alone, I can highlight some very public bubbles that ended poorly for many:

GameStop, AMC, SPACs, cryptocurrencies, NFTs, ARKK, 3D printing companies, whatever.

Given that we now have a huge collection of data showing that this fad-chasing behavior ends poorly for most investors, why does it keep happening?

Because FOMO is one hell of a drug.

Investing is a simple game, in theory. 99% of investors would be better off investing passively into index funds and checking their portfolios once a year. Spend less time actively investing and more time actively growing your income, and let those 9% annual returns and dividends do their thing.

Yeah yeah, past performance doesn't guarantee future returns. I know.

And this passive investing thing sounds good, in a vacuum. But we don't live in a vacuum. We all know someone who made millions on crypto, or SPACs, or Tesla, or NFTs, or whatever. And they probably weren't quiet about it. So you feel some envy, some jealousy, some FOMO. That stock that's up 200%? What if it doubles again? Your friend certainly seems convinced that it has more room to run. How are you going to feel if the guy who turned $10k into $100k manages to turn that $100k into $300k, and you still didn't listen to him?

That would suck, wouldn't it?

So you sacrifice the long game to dabble in short-term trading. And it works, for a little while. You experience a small win, and you take on more risk. But one day, after you lose sight of just how much you are risking, the market moves against you. Volatility works both ways. That easy money on the way up? Those 500% gains? It can come crashing down just as quickly.

You chase the wrong trend at the wrong time, and it blows up in your face.

Index investing is boring, but that's a feature, not a flaw. Sure, you won't make 200% returns overnight owning the S&P 500. But you also won't see your net worth cut in half in minutes because a company issued catastrophic forward guidance.

In bull markets, passive investing is tough. FOMO is rampant, someone will always hit a home run, and you'll think, "that could be me".

But like the writer growing an audience or the entrepreneur scaling their business, it's not about the short-term wins. It's about building a sustainable foundation.

An audience built on growth hacks is one mistimed trend away from indifference.

A business built on discounts is one abandoned promotion away from insolvency.

A portfolio built on hot stocks is one poor investment away from incineration.

Quality over speed, if you want to build something that lasts.

– Jack

If you liked today’s piece, check out Young Money here!


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