It has always been my contention that an investor needs to make only a few key decisions in a lifetime to do well at investing. If you can find a new investment theme before others have discovered it and then ride that trend until it plays itself out, you have the key to great wealth.
The problem with finding these investment themes is that they only become obvious long after they have developed. When the new investment idea is clear to everyone, it is usually entering its final stages. This is when the media and the general public catch the wave. At this point money floods into the sector and carries prices to the extreme. When prices rise to extremes, the smart money begins to move out and unload their positions. Valuations rise and the asset class no longer makes economic sense. Prices continue to rise as money floods into the sector in search of easy gains. At some point new money flowing in to the investment theme is no longer sufficient to keep prices elevated. This is because the smart money is exiting the asset class and selling out to gullible investors who are led astray by the belief that the investment theme is a perpetual moneymaker.
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