Noise and Crowds…So Costly

Andy’s great post got me thinking again on this subject .

In everyday life, noises and crowds leave you with a headache, bruises and anxiety problems. In the stock market, they force you to miss a trend completely or sell early.

I was looking at two stocks, one I don’t own today Crocs (CROX) and one that I own – Google – and adding up my mistakes. With CROX I was noised out and lazy in my last sells and Google is not a big enough position as much as I have blogged positively about search and Google itself. Ouch.

How wrong were the YouTube haters 180 points ago when Google announced the $1.6 billion acquisition (rhetorical…about $50 billion wrong). For those that use time as a way to bugger out of being wrong, 180 points and $50 billion against you holds no mustard. You are wrong no matter what happens next. You won’t be there for the possible bad ending anyway.

CROX offers more of a lesson to me and hopefully you. I hate focusing on my misses and early sells, but that’s how I learn and use this blog to hopefully stop my mistakes (not going to happen in this lifetime).

CROX has NEVER been cheap. The fundamentals have never blazed ‘all clear’ back up the truck. At this point in the company’s growth cycle, it will never be. If it is, it will likely be a dangerous trap. Stupid, plastic, easy to rip off shoes. Here is a thoughtful September 2006 piece by The Motley Fool on why they are SHORT CROX in the 20’s . The jist:

Fad, insider selling, overvaluation and competition.

Here’s the real problem…if the author had actually tried tried the product and listened to customers in the mall’s and on the web, he would have at least considered it was not a fad. Insider selling is never a great ‘tell’ for direction in the short and immediate term. Countrywide insiders were selling for years before the stock was hit as the most recent example. Overvaluation…OY…in growth stock investing that means nothing for years. Competition is always a valid concern, but one year later, it’s obvious that the competition was/is not an issue.

I have chronicled the CROX story as much as any blogger . Forget, as I had mentioned in my original buy piece and Wallstrip show back in October 2006, that the Motley Fooler did not even have a position. My post focused on price and money flow. It was easily backed up by a quick surf around the web and my own experience.

Crowd investing is comfortable, but weak. Following price and thinking outside the box or not thinking at all with lead to successful trend riding. Noise, comfort and crowds are our enemies.

You SHOULD watch the crowd for their BUYING BEHAVIOR on the web and in the malls, but NEVER LISTEN to that crowd for financial advice. If an investment becomes too comfortable, something is likely wrong.

Money SPENT by the consumers and money FLOW from the institutions is all you need to follow to beat the market. Combine this with money management (the real holy grail) and you will manage billions . On this blog as in my fiancial life I stick to my main money management principle…sell when you can, don’t be a pig and booking profits and paying taxes is fine. Definitely not perfect but it has produced some huge winners and helped me blog responsibly for 2 years now on the subject of trends.

Disclosure – Long Google

PS – I hear from friends of my wife that the ladies CROX Pumps are a huge hit and not available/sold out anywhere/everywhere…even on their great website . Not good for the CROX shorts and there are lot’s of them.


  1. richard emerson says:

    Howard: You should read, “The Crowd” by Gustave Le Bon. A quote, “The masses have never thirsted after truth… Whoever can supply then with illusions is easily their master; whoever attempts to destroy their illusions is always their victim.”

    It’s a tough read like Faulkner or the guy who wrote “Lord of the Rings”. It was written in 1890 something. I didn’t find it political, but what is politics but a group of people making policy.

    In the case of a crowd, the collective of the crowd doesn’t make policy, the crowd as a single person, individual, does. Hard for me to understand, here’s my example: Let’s say you, Howard, have an intellect of 9 and would never loot, I have an intellect of 7 and would also never loot, but someone with an intellect of 6 or lower might. If we were a crowd our combined intellect would be one lower than the lowest in the crowd, me, which would be below 7. Why? Because the crowd needs to communicate and it can only communicate at a level that is common to everyone which would be below the lowest of the low of the group, me. In this example it would be 6 or less, you being 9 and me being 7. Gustave points out, my paraphrasing, that a town of law abiding citizens would never loot, but as a crowd they might because the intellect individual of the crowd is lower than the lowest making the crowd individual separate and distinct from each individual that makes up the crowd. The crowd individual has its own intellect not a collective intellect. This brings about an anonymity effect since no individual in the crowd is of the intellect of the crowd individual.

    In summary: When analyzing a crowd think what the dumbest person in the crowd might do and that’s probably what the crowd will do.

  2. dfross says:

    Careful on Crocs. Lots of copy cats. Sketchers and a lot of no-name brands make shoes that look like Crocs. My 13 year old daughter wanted a pair of Croc-like shoes….she didn’t care whether they were actual Crocs or look alikes. She bought a copy-cat shoe. She likes them. Her attitude may not be indicative of the general public, but if is, then Crocs may have some trouble ahead.

  3. StockRake says:

    I hate noise. Noise ruined CROX for me.

    Plus I was in friggn Singapore in Oct 2006 when I noticed they had Crocs stores and every kid and the mother was wearing these shoes. Oh I was too wearing them too btw. CROX was trading under 20 bucks at the time.

    I’m definitely a putz for missing CROX. I saw all the signs, I blogged about it, knew it was going to be hot, knew they would make money, knew all the nurses in the hospitals were wearing them, was wearing them myself, but succumbed to noise and missed big profits.

  4. TraderMark says:

    Richard Emerson just summed up the stock market for me “In summary: When analyzing a crowd think what the dumbest person in the crowd might do and that’s probably what the crowd will do.”

    Sometimes we sit and try to be so intellectual and logical, and try to think like a sophisticated primate. When in fact, what he just said is how the ‘masses’ think. So when you sit there and say “well that makes little sense” from an intellectual point of view – you have to remember the lowest common denominator of thinking. Hard to do and I keep trying to separate the 2 every day – dissassociate how a logical rational person would think versus group think on the street.

  5. Julia says:

    Anyone who has ever tried Crocs loves them. I bought my first pair this summer. I loved them so much I bought a second pair for me and one for my mom and my sister. Now we’re all planning on buying new Crocs for the fall/winter weather. That’s three more people buying three more pairs of Crocs. This is above and beyond the fact that my sister buys new Crocs for her kids every time they grow out of a shoe size, they get a new Croc. And that can happen every 2 – 4 months with young kids. Food for thought. I will disclose that after I bought the shoes, I bought the stock and own it today because I think the shoes are game-changers. Just like Apples iPod was a game-changer for the MP3 market.

  6. Phillip says:

    Crox are a crock, and if you buy them now you will be bitten by the alligator. We have a company who is out on roadshows pumping their stock, knowing full well that the growth is slowing down, they are banking on “new” unproven products and that is a very dangerous strategy. Dump Corx buy NIKE and I am short as of this week at 64.25, it is going to go to $45 soon, beware the October market……

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