Behavioral finance FAQ / Glossary (Fad / Fashion)

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Dates of related message(s) in the
Behavioral-Finance group (*):

Year/month, d: developed/ discussed,
i: incidental

Fad / Fashion


00/8i + 02/7i + 05/1i + see
bandwagon, crowd, trend,
hysteria, percolation,
bubble, rotation + bfdef2

Which assets would match my designer clothes?

Definition:

Fads / fashions are temporary collective
preferences (*) for some idea, person, practice, goods, style, asset or service.

(*) Paradoxically a dislike, even a demonization, also might be fashionable

Yes, even activities that are consider highly serious

(such as investing)

follow fluctuating dress codes and food tastes.

Most F & F are sudden and short-

lived, as  "passing fads", one replacing another
(see rotation).

But some of them might persist for years
    before getting "unfashionable".

Any explanation?

Serious interest? Or fancy?

The episodic emergence of new social inclinations and styles might
be seen as if not a cure, at least a palliative or compensation for status
quo and / or boredom.

It breaks the routine ...unless following fashions becomes a routine.

There is some rationale in such cases.

Fashion can not only make life interesting to some extent but also can
help innovation
.

But as such "rationality" can prove counterproductive after a while.

Fads and fashions can be considered a mild type of crazes or crowd
mania,
which perils are more acute or extensive (see crowd)

Trendsetters

Early birds make new worms popular.

Fashions and trends (see that word) are words used either
jointly ("fashion trend") or as synonyms.

The word "trend" gives the idea that a fashion is a longer lasting
phenomenon than a fad.

It follows a gradual uptrend, until it ends gradually in a downtrend.
It grows and wanes.

It usually starts with a first set of initiators
(trendsetters) and a few followers (early adopters)

Then it either aborts or grows by contagion to
a massive audience... until it loses its "trendiness".

Where does it strikes?

From clothes fashions to money fads


Fashions, fads and trends, are mild kinds of herd behaviors (see that
phrase) found in everyday life and many other fields of human activity and

knowledge.

They address

* not only popular "things" (clothes...), entertainments and current practices,
* but also the world of ideas: politics, arts, sciences, philosophies,
religions..

This focus on the "flavor of the month" that makes the last flavor
"passé" is also the case in money matters:

In economy, and specifically in marketing

(some industries have a short life, some economic paradigms also)

In corporate management (new buzzwords),


In finance, when investors favor, during a
   limited time, in a kind of rotation (see that word)

Either a specific stock or a specific asset, commodity,
    financial instrument,

Or the stocks of a specific economic sector,

Or stocks in general instead of other savings assets,

Or whatever other trading / investing method or money-
    related behavior
that gets popular.

Consequences in finance

Stock of the month?
Or more persistent craze?

=> Is it OK to follow a market fad?


Most fads / fashions are less devastating, less generalized, and often
shorter-lived
than crazes and collective hysteria (see that phrase).

Such hysteria, on financial markets, are found in bubbles and crashes.

But it happens from time to time that a   fad for a
special stock sector is the initial seed that will
lead through mimicry to a generalized bubble.

The Internet stock bubble at the end of the 20th century

lead the whole stock world to dizzying heights.

A fad / fashion can strike on a specific stock also (glamour stock,
shooting star: see those phrases).

Such a "hot" stock might reach a more permanent notoriety, but it might
also end up as a fallen angel (see that phrase) when the fashion collapses.

A related phenomenon is the "rotation" (see that word)
between stock types and/or industries
during a general
market trend.

Are past rotations in previous market cycles

      identically reproductive in the next ones?

Some pundits say so, which can create new fads. But the states
of affairs are usually somewhat different.

In finance like elsewhere, what is "in" and what is "out" does not
follow a preset schedule
.

It might dissolve into irrelevancy once too many people tries in an
untimely way to take advantage of that copy and paste "discovery".

Then they do not get  any lasting profit as it does not fit the new
circumstances,

(*)To find those messages: reach that BF group and, once there,
     1) click "messages", 2)
enter your query in "search archives".

Members of the Behavioral Finance Group,
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This page last update: 25/07/15  

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