It sounds incredible, but the stock market industry is just like the fashion industry!

In the tough world of investing, picking the right stock is by no means an easy feat. Likewise, trying to stand out from the crowd – be it fashion designers or runaway models – is equally an uphill task that almost ensures that the weak will not survive.

Apart from the above, there are a few other similarities that we, investors, cannot ignore. Unlike the evergreen kopitiams that we love to patronise for their strong brew, the aromatic coffee and the sumptuous spread of affordable local food, the stock market and fashion industry are largely different from the local mass market food and beverage sector that is more stable.

1. Stock Market And Fashion Trends Are A Fad

The stock market is a very fluid market that is changing almost on a daily basis. The news flow, the changing prices and the sentiment are variables that change very quickly hence the only constant in the stock market is volatility.

Stock markets are always on the lookout for new themes and growth stories so much so that investors are almost obsessed with finding the next big thing and are willing to pay a premium for growth stocks. We had the semiconductor industry, the commodities sector, the Internet age and the digital economy stocks rising and falling. Stocks tied to new growth stories usually trade at a premium and when they are no longer in fashion, prices fall and valuations start to descend – at times at an alarming rate.

The fashion industry, just like the stock market, is renewed every now and then, which is why brands such as Chanel, Hermes and Louis Vuitton need to refresh their shelves with new product range every season. Similar to growth stories in the stock market, new product launches of fashion brands are sought after by fashionistas only to sell at 50 percent discount when these products become old by the end of the season.

Lesson: Unless you have money to burn and the need to be seen clad in the latest fashion, it is better to wait for “end of season sale”. Similarly, was there a need to chase stocks like Chartered Semiconductor when it was trading at more than $20? In hindsight, no! But we will never know unless we learned a lesson. The next time we want to chase a fad, remember the “fees” that we paid for the lessons.

2. Both Industries Have Spin Doctors

The media, the investor relations people, the corporate communications people, the insiders and the spokesperson i.e. models, agents etc. have a huge part to play to talking up industries, stocks, limited edition handbags, designer gowns.

It is all the same, isn’t it? The power of advertising, communications and marketing will ensure that the latest fad and news get spread around – like wildfire. Most of the time, investors and consumers alike, buy into stories that spin doctors effectively tell.

In the stock market, we hear rumours, we read analysts’ reports and opinion pieces by the experts while consumers buy into stories of glamourous fashion pieces and pictures of celebrities carrying apparels and wearing dresses of designer brands and we shout, “Shut up and take my money!”

Lesson: If you are guilty of the above, it is perhaps time to reflect and decide if you want to form your own opinion or if you want to continue buying into stories hook, line and sinker. While stories can ensure a wider audience, it is important to differentiate between what is a fad and what is not. Fad does not last. Fundamentals do.

3. Both industries have operators

We all know that there are stock operators who move stock prices up and down at will. These people tend to have the ability to control the demand and supply of stocks in the market hence the ability to decide on the price level that they want the stock to move to. This is called cornering the stock market.

In the fashion and watch industry, certain apparels and timepieces are “limited edition”. This can only mean that prices will not come cheap if you wish to own something that is limited in supply. Similar to stocks, no?

But when we own a piece of these apparels and try to sell it in the second-hand market, guess what? You can count yourself lucky if you can get back 50% of what you paid for. You will be even luckier if the “operator-assisted stock” does not end up with zero value.

Lesson: Look out for suspicious movements in the stock prices. Operator stocks in Singapore tend to give the impression that there is a great deal of demand for a particular stock, thereby inducing an investor into buying from the seller. Enough buyers who do that will have the effect of pushing up stock prices.

This article is from Coffee Talk.

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