Thought Bubble | Aussie Stock Forums

Some will find this information completely useless but personally one of the more significant learnings I’ve had about markets is to realise that the same basic patterns exist far more widely.

3 stage bull markets ending in a mania don’t just happen in the stock market. They also occur with the popularity of TV programs, in pop music, fashion, toys and even interior decorating. It doesn’t happen always, not every TV program or every singer goes that way, but it certainly does occur and it’s not uncommon.

As a TV program example I’ll cite Top Gear, that is the UK version in its era presented by the well known trio of Jeremy Clarkson, Richard Hammond and James May.

The show had a niche following and in Australia and ran on SBS for quite some time (stage 1). It then gained mainstream popularity and in due course one of the commercial stations offered enough money to buy the rights to run it (stage 2). Before long there was Top Gear merchandise being sold in shops, public awareness of the show was mainstream even among those who didn’t watch it, there was an entire area dedicated to it in at least one department store, they even went as far doing a live show, as distinct from the TV show itself, and local TV spin offs ensued including an Australian version (stage 3, the mania).

It’s reported that when they first started producing Top Gear, they literally had to pay the studio audience to get anyone to stand there. By the time the show reached its mania stage the opposite was true and being in that audience was something money simply couldn’t buy, demand vastly exceeded supply. Bull market indeed.

Next step – the BBC sacked Jeremy Clarkson following an incident, the other two also left and that was it, game over. As with most manias, it all came crashing down real quick. Top Gear still exists as such today with new hosts but is very much diminished in terms of audience and public interest compared to its peak. It has a lot in common with a stock market after the bubble burst.

Now go and pick a few random pop music groups, so boy bands or girl bands or whatever, and you’ll find the same pattern over and over. A point comes where they are everywhere and their music is pretty much inescapable to anyone who listens to radio. In some cases it goes as far as merchandise being sold, pretty much anything that can be branded with the group’s name, people copying their fashion and so on plus of course the obligatory tour. Then not long after that someone leaves or there’s a huge fight or whatever and the whole thing falls apart usually quite dramatically and that’s it, the bubble’s burst and the game’s over. The odd one carries on for the next 30 years with very much diminished popularity but most quit there and then.

Now look at kids toys or fashion and every now and then the same pattern unfolds. Something becomes popular to the point that even adults without children know the toy exists and even your grandma knows that wearing whatever is the latest fashion. The craze is everywhere but not long after that you won’t find one for sale in any shop and the whole thing’s well and truly over, now it’s nowhere.

Plot any of that on a chart and what you get is a 3 stage bull market which ends in a mania and a bubble burst. In some cases it’s complete with the echo bubble as well – a replacement member in the music group, a variant on the original design of the toy, etc.

For some well I’ve just wasted the past 2 minutes reading that. For me, well I found it rather useful to understand that what goes on in the markets is by no means unique and that the same basic concepts also occur with lots of things which involve herd behaviour. Once a mania occurs, once there’s that huge frenzy and it’s everywhere, collapse is the usual result with a “soft landing” being something few have achieved in practice be it in TV, music or the markets.

In the back of your mind you probably always sort-of knew that. You knew that fashion and pop music and the latest toys all tend to be rather disposable and that once it’s everywhere the next step is it’s nowhere. You’ve spotted a few manias without even realising it at the time but ultimately markets do display that characteristic too.

Ultimately we’re all here to make a profit (it’s a stock market forum, right?) so my real point is that if there’s something else you already understand the basic concept of which can be applied to trading or investing then that may well help you to understand it far better. If technical charts and spreadsheets are causing your eyes to glaze over, well being able to relate that to something else in the world may help in getting your mind around the concept of what’s going on.

If it doesn’t help well then now I owe you for your wasted time reading. ;)

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