Crocs, Boy Bands, And The Natural Formation Of Market Crashes
The current meme is that investment bubbles are unpredictable. These black swan events are random.
I agree that the exact timing of market crashes can’t be predicted, but there is nothing unnatural about a market crash, nor, as hard as this is to believe at our current point in economic history, is there anything unhealthy about a market crash.
The market crash seems to be hooked into psychological approaches to adoption and rejection of trends.
But a quick look at past bubble-bust tandems show a completely predictable pattern. They’re fads.
Look at the trajectory of Crocs–the ugly (at least to me) foam shoes.
At one time, they had a select following among boaters and water sport lovers. They were comfortable and tight-fitting. It was a following, kind of like those first few dotcom IPOs.
Then the shoes were kicked into mass consciousness. Everyone from Presidents to Rock Stars were wearing them. Just like everyone was investing in real estate a few years back.
Now, it appears that the Crocs company is declaring bankruptcy. Demand has plummeted and expenses have skyrocketed. Sound familiar?
The pattern of clothing fads follows almost exactly the trends of music fads, like boy bands. Cult following. Breakthrough album. World tour. Sophomore jinx album. And then, it’s onto the amusement park circuit.
As traders, we can draw a few lessons from this.
First, patterns are predictable, but their exact timing is more difficult to measure. Therefore, try to trade the mid-range. Get in when it’s going up. Hop off when there are signs the trend is ebbing and don’t worry about squeezing every penny of profit.
Second. Fads often come back. What is replacing the Croc? Fashionistas are saying it’s the flip-flop, the once cool footwear fad that was once relegated to the bargain rack at shoe stores. And those boy bands… The comeback tour and album are almost as predictable as those pronouncements that the bull market will never end.
Third. You never can predict what people will put on their feet or load on their iPods.
Related posts:
- What Does The Market Measure?
- Is the Market Really Recovering?
- Why Mr. Market Is Depressed
- Is The Job Market Finally Turning?
- Are You Still Confident in the Market?
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