Metaverse Traps for Gullible Investors — and How to Avoid Them
In today’s Money Morning…the metaverse hasn’t quite escaped its fictional roots…who killed the electric car?…the big lie…and more…
The metaverse hype has well and truly caught on, and speculation is running wild. That’s why it’s so important to keep your wits about you and maintain a healthy dose of scepticism.
As I see it, there’s a major trap that many metaverse stock recommendations fall into. But it’s an easy one to avoid, and I’m going to talk about that a bit further on.
You see, the metaverse is fiction.
The word was coined by Neal Stephenson in the book Snow Crash, first published in 1992. Well, the metaverse hasn’t quite escaped its fictional roots.
Now, I’m saying that as someone who’s recently recommended two metaverse stock picks as part of the Exponential Stock Investor service I run with my colleague Ryan Dinse.
The metaverse is meant to be a huge shift in the way we live, work, and socialise. That brings huge investment opportunity, so it’s important to have a plan of attack. To do that, we need to separate out the future from the fiction.
I want to talk about one of the biggest errors I see in most metaverse stock recommendations. To do that, I’m going to borrow a quick example from the electric car revolution, because it’s got something to teach us.
Who killed the electric car?
When you think of electric cars, which brand springs to mind? Is it General Motors [NYSE:GM]? Toyota Motor Corp [NYSE:TM]? These are two of the stalwarts of the automotive industry.
Are they leading this technological shift? It seems to me that they’ve advanced as much disinformation and obstacles to the progression of electric vehicles as they have helped the sector.
In fact, there’s a pretty damning documentary available on YouTube called Who Killed the Electric Car. It focuses on General Motors’ electric car called the EV1, which was created and promptly destroyed in the mid-1990s. The not too subtle suggestion of the film is that it was more convenient for GM that their electric car project failed.
Then there’s Toyota.
As late as 2020, Toyota’s CEO — Akio Toyoda — was warning of the perils of electric cars. He predicted a move to electric vehicles would mean that ‘the current business model of the car industry is going to collapse’, and that, ‘the more EVs we build, the worse carbon dioxide gets’.
That’s what crypto diehards would call FUD (Fear, Uncertainty, and Doubt). Now, that’s not to say there aren’t transitional issues to overcome. But the fact is, Toyoda has taken the most pessimistic possible view of electric cars and is ignoring all the benefits.
Now, that shouldn’t be surprising. That’s what’s known in the trading world as ‘talking your own book’. That’s what every hedge fund manager is doing every time they tell you about how great some stock is AFTER they’ve already bought it.
It’s exactly what Michael Burry was doing every time he slammed Tesla on Twitter, while he was holding a significant short bet on Tesla of more than US$700 million. He’s got a big platform, and he’s trying to convince people to see things the way he does. That, after all, can’t hurt his trade.
And, now since we are talking about it, Tesla is the name most of us think of when we think of electric cars. They’re an industry disruptor, not an incumbent, and that’s how these things usually go.
The big lie
The big lie in the metaverse hype is the idea that the incumbents are the ones leading the charge — the likes of Meta Platforms Inc [NASDAQ:FB], whose rebrand caused a lot of the metaverse hype.
But is Meta’s refocus really industry disruption? Or is it the thrashing arms of a drowning man?
Think about the Toyota Prius. It was an early attempt to fulfil the need to go green in the automotive space. It had its supporters, and it was certainly good enough that you couldn’t really shoot Toyota down for the effort.
But it was really an attempt that was shaped by what was convenient for Toyota and their business model. It was a pressure release valve. Something that lets people exercise their environmental conscience but doesn’t fully address the real problem.
The metaverse solutions that come from the big tech players like Meta, Apple, Google, and Microsoft will be what suits their current business model, and not what creates the best solution. They’ll try to shape the metaverse in the way that suits them best.
I expect the real change will come from the small disruptive companies with nothing to lose. Blockchain could be a critical part of this new future, providing decentralised decision-making, funding, and ownership. The winners may be the companies that embrace and leverage this new decentralised phenomenon.
In this next version of the tech revolution, I expect some of the biggest winners will be names most people haven’t heard of yet.
In ‘Metaverse Mania DECONSTRUCTED: A Sceptic’s Guide to Becoming an Early Stakeholder in Web 3.0’, we target five investment ideas to make the most of the metaverse mania. We aren’t recommending Meta, Google, or Apple. We’ve got less obvious picks that we think create real disruptive value.
Until next week,
Editor, Money Morning
Izaac is also the editor at Exponential Stock Investor, a stock tipping newsletter that hunts for promising small-cap stocks. For information on how to subscribe and see what Izaac’s telling subscribers right now, please click here.