Stock markets and fast-fashion
Feel good rules supreme
“We are feeling liberated.” This was the reaction of Zomato founder, Deepinder Goyal post the listing of Zomato on the Indian bourses. Its stellar listing has paved the way for a slew of unicorn startups slated to IPO in the coming months. At the same time, it has also brought a change in perception in terms of how investors value a company, going beyond the conventional ways of using earnings multiples, cash flow, etc.
If we look back in time (circa 2007) and compare it with now. We have witnessed two large crises — the financial crisis of 2008 and the current pandemic. Each of the crises has contributed to the change in human behaviour at large, not just to the investing mindset.
This was the backdrop of my conversation with a two-decade-old boutique wealth management firm. We were discussing the evolution of the investor psyche and how it impacts the investment decision-making process.
Let’s consider a case of an investor who is under discussion with a financial advisor for his long term goal planning. During the conversation, he/she demonstrates risk-averse behaviour and wants to play safe with his investments. On the other hand, he trades in the derivatives segment on a DIY platform. In this contradictory scenario, how would you define this behaviour?
This is not a new behaviour that is at play. In fact, everything is known about investor behaviour and there is no real difference between the investors of yesterday and today. This is true and is a validation of how dynamic human behaviour is. The key here is to understand the response to stimuli in a contextual manner.
There is another industry where consumers display a similar behaviour — the world of fast-fashion.
In the growing up days, sales and discounts used to be just once or twice a year affair, but today’s reality is something different. We, as consumers, have gotten used to sales and discounts, leading us to buy more than we need. The modern phenomenon of fast-fashion came to life to satisfy the insatiable desire to have the latest fashion — quicker and at a lower price.
Parallelly, the entire movement of sustainability has been picking up steam over the years. Consumers, particularly millennials and beyond are increasingly using purpose and sustainability, as important parameters while making their buying decisions.
Then came the pandemic, with people locked in their homes, there were very few options available to indulge. Fashion retailers’ struggling to generate revenues and reduce their inventory, went into overdrive with sales and discounts.
This was a perfect storm of overconsumption tapping into the “we are feeling liberated” mindset.
Present > future
Recency bias and value buying are the dominant behaviour (overruling rationality) at play in both these examples — investors in the stock markets and consumers of fast-fashion.
Recency bias is a cognitive bias that favors recent events over historic ones
Almost, all the investors believe in the philosophy of long term wealth creation, but the excitement of daily price movements is too good to resist. This is especially true when it’s a good day in the markets — the current run of the stock markets is a case in point. Blindsided by the positive sentiment, people tend to buy more stocks that may not provide a good return in the long term.
Similarly, consumers are willing to overlook questions about the sustainability of fast-fashion apparel due to the overpowering emotion of feeling liberated and finding value for money. The reality is, not many consumers follow their intention with action — belief in the sustainability mission, but don’t buy.
To sum up, this is the reality that we live in where there is an ongoing gap between one’s intention and action. The quest is to discover opportunities in reducing the gap.
What do you think about this? Would love to hear your thoughts.
Until next time!
~ Sajid
(Sajid is the founder at Le Monturé Strategy, a boutique strategy consulting and advisory firm that works at the intersection of behaviour, business and innovation)
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