Fads, Manias and Bubbles!

As we approached the holiday season (which seems to start even before Thanksgiving now), I did a quick survey around the office to confirm what I already expected, there were no must-have, stand-in-line, drive hours to buy toys in play this holiday season. I breathed a sigh of relief knowing that there would be no standoffs for a GI-Joe with Kung-Fu grip or shouldering aside someone’s grandmother for the last Nintendo Wii.

These consumer crazes happen every few years and are not, as some may expect, always a sign of booming times. In fact, some appeared at the direst moments for consumers. Shirley Temple dolls and Monopoly boards flew off the shelves during the great depression in the 1930s while Chatty Cathy dolls were all the talk during the recession of 1960.

Investment fads, like consumption fads, are also sometimes asynchronous with the economic landscape. These mini-manias pop up all the time but they tend to grab our attention more when there are echoes of past bubbles in the ether. The most baffling side of these manias is not the validity of the underlying idea, but the market reaction to immaterial cosmetic nuance. Case-in-point, company names. Many are aware of the phenomenon during the dot-com era of companies adding “.com” or “internet” to their name (that had nothing to do with web) and immediately getting a share price bump. What many do not know is that companies also got the same type of share price bump from removing “.com” or “internet” from their names during the subsequent burst.

Recently we have had a few examples (we quickly reference blockchain here but will be writing a more extensive piece in the coming weeks):

  • Ripple, another burgeoning cryptocurrency, rose from 23 cents per coin to nearly $3 in a matter of one month, making its founder temporarily richer (on paper) than Mark Zuckerberg (and number five on the Forbes top billionaires).
  • Long-Island Ice Tea Corporation added “blockchain” to their name and stock jumped nearly 500%.
  • Kodak (yes, the 130-year-old photo company) announced they will use KodakCoin (its own cryptocurrency) and the stock immediately rose 60%.
  • Canadian miner Kairos Capital (which already had lithium assets) sent out a proxy to change its name to Lithium Chile and stock rose nearly 100% in a week.

But as we mentioned earlier, these mini-manias pop up all the time. Leveraged closed-end municipal bond funds were all the rage in the early 1990s, but investors forgot to pay attention to premiums to net asset value and lost billions.