MADE TO STICK
Crowds, stories, flows… you might be thinking, ‘This isn’t really different from what I’m doing today. I listen to friends and experts, and it doesn’t seem to work that well for me.’
Indeed, most of us take these elements into account when deciding on our next investment or making other life choices. We lean on the crowd’s judgment for guidance, from determining the price we should pay for an apartment, to choosing the next series we should binge-watch, and even selecting our holiday destinations.
There is nothing inherently flawed with following the crowd: doing so consistently would mean our performance matches the average of the species. The challenge is that the crowd frequently changes its mind, shifting its focus from one asset to another, and we find ourselves trying to keep pace with a moving target. When we invest too early or too late in a trend, the implications can be severe: we end up buying when the price is at its highest and selling when the price is at its lowest, losing money along the way. And over time, our errors in judgment don’t just add up; they compound.
However, assets can offer us clues about when to follow the crowd and when to chart a more independent course. Despite our fickle nature, some of them consistently draw our interest, remaining appealing over time or becoming focal points we repeatedly gravitate towards.
I refer to these as “stores of interest”, a trait often indicative of promising investment opportunities. By focusing on assets that exhibit these characteristics, we can minimize the risk of miscalculations.
How do we identify them?
Stores of interest possess three key attributes:
They stand out from the rest: Gorgeous properties in prime areas, recognizable brands, mesmerizing pieces of art like the Mona Lisa, limited editions, and first-of-a-kind items. Whether because they are rare, unique, new, or different, they make a strong impression on our minds.
They resonate with a broad audience: Some assets have universal appeal; they are easily accessible or have the potential to meet widespread needs and desires. They often become popular, resonating with both novice and experienced investors. For example, stocks from companies whose products and services are used daily by millions worldwide, opportunities linked to a cause like sustainable investments, or index funds because they allow investors to gain broad market exposure in a simple and low-cost way.
They linger in people’s minds: An asset’s ability to stand out and resonate broadly is crucial, but its capacity to remain memorable or desirable over time solidifies its value. Companies that own a piece of consumer mind like McDonalds or Apple are a good example of this. Luxury watches, gemstones, museum pieces, and memorabilia that evoke nostalgia and are cherished across generations also exemplify this. Some, like gold, have withstood the test of centuries.
I like to remember these attributes as the 3 “S”s:
- Stand out
- Spread
- Stick
They serve as straightforward criteria for differentiating between promising investment opportunities and less desirable ones. Assets that pass the “Store of interest” test are more likely to captivate interest over time, generating compelling narratives that ensure a continuous influx of buyers and thereby preserving their value.
I understand if, at this point, you still don’t feel 100% comfortable investing in an asset just because it passes this test. Many investors require more tangible elements before committing their money. Is there another test that provides more concrete evidence? The answer is yes, and you’ll learn about it in a minute.