I was listening to an interesting podcast a few days ago. It was talking about sales and Black Friday.
It made me think about a few things. Many people will spend an hour queuing up for a $4 discount, when if you offered them a $4 an hour job, they would refuse it.
On a similar theme I was reading the book called Oversubscribed this week, on the way to see a client.
In the book the author speaks about how some businesses have so much demand, they can’t keep up with the supply, whereas others struggle.
Few people are amused by those pushy fake Channel bag sellers, and yet from a purely economic point of view, they are offering more value than the real thing as the author points out.
That is because many of these sales people are selling their bags at barely above the production price.
Selling the bags just provides them with a basic living. Besides the bags they are selling aren’t 1/100th of the quality of the real thing.
The problem is that people want what others buy, and not what others are selling.
So luxury brands have created a demand through multibillion Dollar campaigns.
How is this related to investing? Well not only does it show why so many people will buy things they don’t need to impress people they don’t even like, rather than investing, but it also shows why bubbles form.
Instead of engaging in long-term investing, so many people can get seduced by the buying habits of others.
The Bitcoin craze has something in common with the Channel bags. People are drawn in by status, stories and rising prices.
They aren’t drawn to fake luxury bags no matter how rational the purchase is. They aren’t drawn to low-risk long-term investing unless they are guided.
Being a rational consumer isn’t as easy as you think it is. Studies have shown, after all, that only serial killers and economists are truly rational.