Mike Winkelmann just became the third-most valuable living artist in the world. And he did it without ever putting paint to canvas.
You see, Winkelmann, commonly known as “Beeple,” is a digital artist. A non-fungible token (NFT) for one of his digital pieces sold just the other week for over $69 million.
Now, if you’re unfamiliar with NFTs, you’re not alone…
Buying an NFT isn’t the same as buying a copy of an image online. It’s buying a “token” that says that you own the work. These are “one of a kind” assets verified using blockchain technology — crypto collectibles, if you will.
NFTs can also be attached to GIFs, videos and other pieces of “internet memorabilia” like memes and screenshots.
If this sounds silly to you … it does to me, too.
But thanks to collector boredom and mediamakers looking to make money off the novelty factor, NFTs are all the rage right now.
And just like traditional pieces of art, NFTs don’t have any underlying worth. They don’t generate any earnings or cash flow. And even stranger, these NFTs don’t give the buyer any control over the artwork itself. Some market commentators have likened these tokens to “digital trading cards.”
Still, people are willing to pay through the nose for them in the hopes that someone will pay more for them down the road.
We warned you about this kind of activity in the market when we talked about the “da Vinci factor” awhile back.
I don’t personally set much store in art collecting. Sure, it can be lucrative. But America’s greatest wealth creator is still the stock market.
But as crazy as this may all sound, some people treat their stocks exactly like these high-priced art pieces.
They pay top dollar for stocks with no real value, simply hoping that someone will be willing to pay more for them down the line.
This is no way to look at stocks — not if you want to make long-term money, at least.
Instead, you want to see stocks for what they really are: pieces of a business.
What Other Investors Are Missing
If you look at stocks as pieces of a business, you can see how much they’re really worth … rather than buy them simply because they’re going up.
Because if a company’s underlying worth is much less than it’s being valued at, it’s sure to fall sooner or later.
Take our old punching bag Nikola Corporation (Nasdaq: NKLA), for example.
I wrote about this electric truckmaker, and its meteoric rise and fall, just a few weeks ago.
After rising from $10 to $79 per share — more than 650% — in six months, it was only a matter of time before Nikola’s true underlying worth caught up with it.
As it turns out, the company was only soaring so high because its founder, Trevor Milton, had put dozens of falsehoods about it into motion.
When this information was released to the public, the stock plummeted 77%.
Today, Nikola’s stock is selling for just $17. And it serves as a warning for investors not to fall for stocks without excellent businesses behind them.
Now, locating the best companies in the market can be a daunting task … which is why you want to make sure you’re following a rock-solid approach before you invest.
Don’t Chase Stock Prices — Follow an Approach
Finding good businesses is hard … believe me, I know. That’s why I always use my colleague Charles Mizrahi’s Alpha-3 Approach.
Charles has been in this business for nearly 40 years and he’s honed these filters over those decades of experience.
Here’s how it works:
- 1: Alpha Industry. Charles only looks to buy businesses in major industries — those that are riding tailwinds and set to soar.
- 2: Alpha CEO. Once he’s sold on the industry, he makes sure that the business is being run by a rock-star CEO — an excellent manager with a track record of growth and increasing shareholder value.
- 3: Alpha Money. Finally, he does a deep-dive of the company’s finances to be sure that it’s being seriously undervalued by Wall Street and selling for a bargain. If it’s not, he won’t recommend it.
This tried-and-true approach is simple enough that even the least-experienced investors can use it to their advantage. That’s exactly why Charles created it.
And he’s recently used it to pinpoint a fantastic opportunity in the market — one that he’s very excited about.
To learn more about it, and how to get his report on it, click here!
I hope you see that NFTs and the art market aren’t the best spots to park your hard-earned cash. Invest in great businesses today and watch them grow your portfolio for the long term.
They’ll give you returns for years to come.
Assistant Managing Editor, Alpha Investor