How To Spot Fads

A big part of investing in individual companies or running an active portfolio is trying to spot macro trends in their infancy and subsequently riding the wave to riches. For instance, when the iPad was released in 2010, I distinctly remember Fast Money making fun of the name that Apple had chosen for it—saying it sounded like some sort of feminine product. Meanwhile, I was loading up on common and calls, thinking about how the iPad could revolutionize many industries (textbooks, traditional PCs, newspapers, e-readers, etc.). And so it did, although I never held as long as I would have liked to.

Spotting early trends and having the conviction to hold on to your early investment is not an easy task. Most times, the trend is so evident after the fact that you can’t help but feel self-pity for missing out.

If you have children or grandchildren you can typically pick up some trends from them. They all want to do and wear what their friends are doing in fear of being labeled an outcast. Are they all wearing the same Adidas shoes? Are they sending their friends constant Snapchats or Instagram stories? Are they all taking Uber or Lyft instead of owning a vehicle? Although some of the trends may not be directly correlated to a public company, there is usually a proxy play available. Whether you’ve spotted the trend in its infancy is the difficult part.

Switching gears a bit, I want to talk about a theory that I’ve had for a while now that could be a proxy for spotting fads or declining macro trends. It starts with Groupon. Groupon was founded in January of 2008 and went public in November of 2011. Since the IPO, Groupon is down -86%. Its market cap peaked around $16.7B and currently sits right under $2B, sad. What an ugly chart.

This post isn’t about how bad of an investment Groupon is though. It’s about using them to spot trends—my version of channel checks. If a company is using Groupon, they are most likely desperate for new sales or trying to get rid of excess inventory.

To briefly test this theory, I logged on to Groupon earlier to see what trends I could spot. Here’s what I found:

  • 3-month free access to Pandora radio (which got acquired last year by SiriusXM). While publicly traded, Pandora peaked around $7B market cap and got bought out for $3.5B. Not exactly inspiring. Also, with Apple Music, Amazon Music, Spotify, et. al., the competition is pretty stiff.

  • Multiple GoPro cameras going for 50% off. Their stock is down 76% since going public in the summer of 2014. I wrote about this fad over three years ago calling it a camera on a shtick. I also called GoPro the Eastman Kodak for millennials—still applicable.

  • Concert tickets for Blink 182 and Lil’ Wayne. What’s their age again? No proxy for this one. Full disclosure: I saw them a couple of years ago and they still rocked out. But I definitely felt old.

  • Coupons for urban hatchet throwing and escape rooms. Both fads, believe me.

Very rarely do I purchase something off of Groupon—it’s like shopping from a SkyMall magazine. But maybe I’ll start using it more often to see what things are falling out of favor. I bet if you checked a while back you would have seen MoviePass and probably some of the Blue Apron deals on there. Shitpost alert: It’s only a matter of time before Tesla starts selling Model 3’s on Groupon.

If anyone has done any research into this I’d be curious to learn more. I admit it’s not the most scientific method for research but it could be a good place to start. Let me know in the comments what other trends you’ve spotted on Groupon.