Learn the deep investment in lightning protection trends!

Megatrend investing can generate attractive returns, but with one condition: you need to reinvest when no one is paying attention or when everyone is shying away from these assets.

Even if you notice an obvious major trend, if other investors are already betting on this opportunity, your earnings will still be affected.

This is exactly what happened to all investors in one sector last year.

Below I'll share what happened in that section, what we can learn from it, and how to avoid this trap.

The story behind an obvious megatrend is always fascinating, especially the kind of investment theme that will change our lives for decades to come.

Investors who are betting on this investment theme are generally right. The sector they are entering is likely to take off in the next few years, but this doesn't change the basic principle of investment: if the timing is wrong, you will still suffer huge losses.

The section we're talking about today is the clean energy section.

Investors' enthusiasm for clean energy was high in 2020. Ford Motor unveiled the all-electric Mustang Mach-E, switching from its most characteristic muscle car to an electric car. In the same year, GM also launched an all-electric SUV. Honda plans to launch an all-electric SUV called Honda ProLogue in 2024.

In addition to the above companies, Jaguar, Cadillac, Volvo and other car brands plan to only produce electric cars by 2030.

Not only are automobile companies promoting the development of clean energy; the US, Australia, China, and other countries have announced plans to gradually phase out fossil fuels and rely on clean energy, which includes investments in solar, wind, and hydroelectric power.

Governments and large companies around the world are paying attention to clean energy. Clean energy is undoubtedly the future development direction, and this major trend will take off in the next few decades.

The problem is, everyone is seeing this big trend, and they're piling up to trade. The following chart shows changes in the circulation share of Wilderhill Clean Energy ETF-Invesco (PBW):

PBW holds a basket of clean energy stocks, and since it is an ETF (exchange traded fund), PBW reflects how investors view the entire sector.

Because ETFs such as PBW can increase or liquidate shares according to investors' needs, if investors are very interested in clean energy, PBW will issue more shares to meet new demand.

This happened in 2020, when the number of PBW shares surged several times last year, when people had been snubbing this sector for many years.

This happens when investors favor an asset. They are buying and buying, regardless of the price; they usually enter the market near the high point where the price rises.

This kind of transaction was possible for a period of time. In 2020, PBW soared by about 200%, but after peaking in February 2021, PBW has already fallen by more than 50%. Please take a look at the image below:

However, this sharp drop does not mean that the megatrend is over, nor does it mean that clean energy has been condemned to death.

This just shows that no matter how big the megatrends are, your investments won't survive the frenzy. It's easy to lose money if you buy when everyone else is excited.

Clean energy concept stocks will eventually reverse, and the general trends driving their development remain unchanged. But before you consider entering the market, you should wait until the mood cools down and the trend reverses.

Most importantly, as an investor, you should avoid extremely excited markets. Seems like a no-brainer, but it can lead to huge losses.

(The opinions in this article only represent the author's personal opinion and are not used as any investment advice. Investments are risky, and you need to be careful when entering the market)

Analyst: Chris Igou

Compiled by Samantha