3 Industries That Have Proven to Be Bad Investments
"It's different this time," can be a dangerous assumption. Let's take a look at some of the industries that have burned investors.
This would seem to be a great time to snap up some of the leading air carriers. Jet fuel prices are low, and the improving economy is generating demand for corporate and leisure travel. There's also been a lot of sector consolidation taking place, with mergers helping the financial fortitude of combined companies.
Shares of United Continental (UAL) have tripled over the past three years and American Airlines (AAL) has nearly quadrupled in that time. That may trick investors into thinking that it's the right runway for their money, but history has a funny way of rerouting the final destination.
"If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down," billionaire investor Warren Buffett once joked after getting burned, calling the industry a bottomless pit. The good times don't last because older planes are costly to maintain and even more costly to replace. Then we get to the disruptive labor and union issues that seem to creep up at the worst possible time. If you buy an airline stock, you might want to respect the "fasten seatbelt" light: The ride can get a bit choppy in all of the turbulence.
The smartphone is the new PC, and everybody loves apps. This has been great for some phone-makers and wireless carriers, but it hasn't been as lucrative for the companies making the apps. If you have ever played "Words With Friends," "Mafia Wars," or "FarmVille," you know Zynga (ZNGA). If you prefer "Candy Crush Saga," then King Digital Entertainment (KING) is your app publisher.
Both companies went public with dreams of getting bigger, but it just hasn't happened. Gamers are fickle. Zynga's bookings peaked in 2012 and King appears to have peaked last year. Investors are the ones taking the hit. Shares of King have lost more than 40 percent of their value since going public at $22.50 last year. Zynga has had it even worse, surrendering three-quarters of its value since hitting the market at $10 four years ago.
Keep playing the games, but don't bank on the game makers.
There's no shortage of gold bugs out there, and that makes sense since the price of gold has risen at an annualized rate of 10 percent over the past decade, just edging out the S&P 500 as the top asset class.
An increase in demand as China and other emerging markets grow in stature has helped, and gold prices also tend to spike at whiffs of global uncertainty and inflation. However, gold prices have actually fallen sharply since 2011, and if we look out over a longer chunk of time -- decades instead of merely a single decade -- the snapshot isn't as pretty. The price of an ounce of gold actually peaked in 1980 when inflation and political uncertainties ran wild. It can always happen again, but it's been a bad bet over the long haul.
The risk grows when buying into individual mining stocks, because they are also at the mercy of mining efforts and escalating extraction costs. Stick to mining for gold figuratively instead.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. Check out our free report on one great stock to buy for 2015 and beyond.