Did you invest in unicorns in 2017?

Once upon a time, images of unicorns were rarely seen. But over the past couple of years, many people have come to fancy themselves as kindred spirits to these mystical creatures.

Nowadays, you can't walk two minutes through a shopping mall without spotting a unicorn on a T-shirt, a mug, a jumper, or a 2018 wall planner. And before that, the fantastical creatures - accompanied by glitter stars and rainbows - had swamped social media platforms like Twitter and Instagram.

Did you spot this mania in the making? After all, for most of us investors over the past few years, the word unicorn sparked thoughts of start-up companies with $1 billion valuations, not a wardrobe essential.

Fantastical fashion

It turns out one way to profit from unicorn mania was to buy shares in Dunelm Group(LSE: DNLM).

I know! I was as surprised as you.

But, according to a report on the This Is Money website, the unicorn craze was one of the biggest trends for 2017, and one of the most popular Christmas presents purchased at Dunelm. Unicorns helped the retailer lift sales over the festive period by 3.4%.

Other firms to benefit included Poundland, which supplied pencil cases and notebooks emblazoned with the creatures, and Kellogg's, which made colourful unicorn cereal.

No big deal

Still, I doubt anyone bought shares in Dunelm to try to profit from unicorn fever. Even if for some reason you thought of the purveyor of keenly priced bed linen and cushions when seeking your unicorn exposure, such sales would only comprise a small fragment of Dunelm's overall revenues. At best, the retailer's ability to capitalise on the craze might reassure long-term investors that Dunelm still has its finger on the pulse.

And this underlines one of the difficulties of using your own eyes and ears to look out for investment opportunities. By the time they're truly widespread, the companies that are producing the products will usually be huge concerns, with plenty of other operations that swamp the niche you're seeking exposure to.

For example, you might have bought shares in Disney a few years back because you felt the return of Star Wars to movie theatres would smash box office records.

You'd have been right! But Disney's shares have gone more or less sideways, as falling subscriptions at its ESPN sports TV division has pulled down its returns.

Small companies, big impact

There are a very few huge companies (mostly American) where identifying big broad trends a few years ago would have rewarded you had you backed your observation with money - Amazon, Netflix, and Apple spring to mind.

But I think you are better looking at smaller companies if you're going to play this game.

For instance, I've been a paid-up fan of tasty treats from Hotel Chocolat(LSE: HOTC) for years now. I've also paid attention to its gathering rollout - in particular, the opening of stores in the main London railway stations has provided a handy last-minute present stop when visiting friends and family at the other end of a train line.

While I avoided Hotel Chocolat's IPO on principle, my confidence in the brand and the strategy was rewarded when I picked up the shares after they sold off sharply at the end of last summer. They quickly bounced back and I subsequently sold, due to my fears about the UK consumer (but that's another story).

There are other small-cap shares I missed that have had good runs that somebody with their nose to the High Street pavement might have picked up on - Games Workshop(LSE: GAW) is one multi-bagger that springs to mind. Its shares have quadrupled over the past couple of years. Chatting to your local Games Workshop store manager might just have got you into the shares ahead of the pack.

Of course, the risk with small companies in small niches is that their hot product can fall from favour as quickly as it rose. When that happens, the results can be brutal.

Returning to the chocolate theme, Thorntons seemed to have a shop in every town at the height of its powers. It was all over the supermarket shelves, too. But its omnipresence turned to over-saturation in the minds of shoppers, and Italy's Ferrero eventually bought out the struggling brand in 2015 after years of share price declines.

Or take a company still listed on the London market - handbag maker Mulberry(LSE: MUL). In 2012, Mulberry shares topped £20, as fashionable women across the world elbowed past each other to buy its then-popular Alexa handbag. I wouldn't say the brand exactly plunged from grace, but the shares certainly couldn't maintain their previous lofty rating. By 2014, the share price had crashed to below £7.

Pundits are now talking up the prospects of a fresh rally based on the observation that Royal-bride-to-be Meghan Markle is rarely spotted without a Mulberry handbag...

Do your (maths) homework

Famed US fund manager Peter Lynch popularised the idea that private investors could have an edge over professionals by keeping their eyes open in his classic book One Up On Wall Street.

"Invest in what you know," was Lynch's motto.

Lynch's book remains a great read. However, I'd caution (and I am certain Lynch would agree) that "knowing" here means more than just buying into whatever you saw a lot of under your Christmas tree.

Figuring out how much of a fad is already in a share price - and how much a mania will even impact the bottom line of a company - will always be just as important.

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Owain owns shares in Amazon.