The Peloton: A Lesson in the Perils of Fad Investing
The Rise and Fall of Peloton
Remember all of those commercials and ads of people riding their stationary bikes inside their bedrooms, their studio apartments in the city, and home office spaces during the height of Covid? The Peloton was a fitness device that quickly gained popularity among workout buffs and gadget enthusiasts alike. However, the Peloton’s moment in the sun was short-lived, as the device soon fizzled out and failed to live up to the expectations of many users.
It’s a shame that the Peloton didn’t live up to its potential, as it could have been a great way to get more people moving to improve their health. However, the Peloton and this article is also a cautionary tale about the dangers of investing in present fads instead of historic trends. If you’re thinking about investing your money, be sure to do your research and think long-term instead of chasing after the next big thing. So, what’s the story about Peloton that caused this company to be the hype of media to another business model left collecting dust?
The Rise and Fall of Peloton
The Peloton was released in 2014 and quickly became a popular fitness device. It was designed to simulate the experience of riding a stationary bike in a group fitness class, and it came with a monthly subscription that gave users access to live and pre-recorded classes.
However, within a few years of its release, the Peloton began to lose its luster. Users began complaining about the high price of the device and the cost of the monthly subscription. Have you seen some of the current subscription costs or rental costs of the bike? Additionally, there were reports of the Peloton being difficult to use and unreliable. As a result of all these factors, the Peloton slowly began to fizzle out.
What Went Wrong?
So what exactly went wrong with the Peloton? It’s hard to say for sure, but there are several possible explanations. Firstly, the Peloton may have simply been too expensive and complicated for most people. The device itself cost around $2000, and the monthly subscription added an additional $39 per month on top of that. For many people, this was simply too much money to justify spending on a workout machine. This likely contributed to its downfall as well, as people were not willing to put up with their stated issues and costs when there were other options available.
The Perils of Fad Investing
The Peloton is just one example of a product that quickly gained popularity, but ultimately failed to deliver on its promises. Many other products have followed a similar trajectory, falling out of favor just as quickly as they rose to prominence. This phenomenon is commonly referred to as a “fad.”
A fad is something that is popular for a brief period of time but eventually fades away. Some popular examples of past fads include Zen gardens, Beanie Babies, and mood rings. If you still use or have any of these items, take no offense, you are simply waiting for those fads to come back. I mean, mullets are making their way back to the lime-light. Top Gun anyone? Imagine a man with a mullet carrying a Beanie Baby in his Zen garden while determining his mood with a ring. It could happen.
While fads can be fun and harmless enough when it comes to consumer products, they can be dangerous when it comes to investments. Many people have lost a lot of money by investing in companies or products that turned out to be nothing more than passing fads.
For example, remember Crocs? The company behind these popular rubber shoes was once worth over $6 billion. However, Crocs’ sales began declining in 2012 and the company has since struggled to regain its footing. As of 2019, Crocs was worth less than $800 million — a far cry from its peak value just a few years prior.
As with any investment, it is important to think long-term. Most of us are not entrenched enough with companies to invest in something before the hype, so by the time we do invest, we are paying for other people to profit while we are left with empty pockets.
In the world of investing, it’s important to look for companies that have staying power as well. Companies that will still be around in 10, 20, or even 50 years from now. But sometimes, it can be tempting to invest in the latest fad instead. After all, what’s hot today could be gone tomorrow. But as the story of Peloton shows, investing in present fads can be a risky proposition. Here’s a snapshot of their 5 year stock price with the current share price hovering around $10 per share.
Imagine buying shares of their company in January of 2021 for nearly $170 a share to then lose approximately 90% of its value. In another perspective, pretend you put $10,000 into the Peloton stock in January of 2021, if you didn’t sell at any point during its price falling, your investment would be worth less than $1,000 today.
The Peloton is just one example of how a product can gain popularity quickly but fail to live up to the hype in the long run. If you’re thinking about investing your money, be sure to do your research and think long-term instead of chasing after every new fad that social media and the news might be showcasing. No matter what you are investing in, there’s no guarantee that you will make money, but by sticking with companies and products with proven staying power, you’ll be better equipped to weather any market fluctuation and come out ahead in the end.
*This is not financial advice. For educational purposes only.