Lessons From Elmo

24th of March, 2020

Photo by Reno Laithienne on Unsplash

New Brunswick, Canada, December 14, 1996

27-year-old Walmart employee Robert Waller was involved in a nasty incident resulting in him being taken to hospital. His pants ripped, broken ribs, a pulled hamstring and a severe concussion. His last memory before losing consciousness was the harrowing sight of a white Adidas sneaker coming down toward his face.

The event leading to Robert’s injury started when a shopper spied him holding a Tickle Me Elmo. This escalated into a small riot as frantic shoppers desperate to claim the prized Tyco toy were overcome by their most primal instincts and a brawl broke out.

As these shoppers slugged it out Robert was just one of the casualties.

The retail price was just 30 bucks for a Tickle Me Elmo, if you could get your hands on one. In the secondary market frantic parents were typically paying $1,000. This was an era when the sophisticated online markets we know today were just emerging, so price transparency was not high as vendors placed printed adverts on pin up boards and flyers under windscreen wipers.

There are even reports of parents desperate to ensure Christmas morning was everything their little bundles of joy expected, paying up to $3,000 to ensure the toy sat under their tree.

The irrational behaviour driving sensible folk to do the most extraordinary things became too strong for many to contain.

Like the absurd behaviour of the Tulip Mania C1637, the Tickle Me Elmo craze is just another example of irrational human emotions.

Toilet Paper Crisis

Australia is in the grips of Health, Market and Toilet Paper Crisis – but our irrational accumulation of the soft tissue gives us great insight to human behaviour.

Research can tell us a lot from our hanging preferences of the humble toilet roll, patented 1891. A study by the University of Michigan found those earning north of $100k pa bought their paper on sale 39% of the time compared with only 28% for those making less than $20k.

While in the late 80’s Barry Sinrod and Mel Poretz discovered that 60% of those who make +$50kpa prefer to hang their paper in the over style while 73% of those earning less than $20k go for the under hang. Who knew how you hung your toilet paper could say so much about you?

But things are starting to get completely out of hand here in Oz. In Westfield Parramatta a fight erupted  between shoppers resulting in a knife being pulled, the police being called, and an arrest being made.

Sadly, this has not been an isolated event with a male being tasered in Tamworth’s Big W store after assaulting staff and another customer over the sacred white tissue.

Scomo has assured us he will have enough to go around.

Sunny Ngai, General Manager at ABC Tissue said that “at a retail level only about 1 per cent of packaged toilet paper products on supermarket shelves were imported.” Tim Woods, of Industry Edge went on to say Australia imported barely 15% of its required pulp for toilet paper which comes from countries including Brazil, Chile, Finland, Sweden and New Zealand.

Given that the majority of what we consume is made right here in Oz it seems pretty reasonable that there should be plenty to go around. It’s just a matter of getting it into our supermarkets! Yet we are still so fascinated with toilet paper that retailers are having to enforce strict restrictions on customer purchases.

Go to the shops and try to buy some canned vegetables, rice, pasta and toilet paper and ask yourself why?

Ruled by our emotions

How is it that with all the wonderful advancements in mathematics and science we are still emotional, irrational beings capable of such despicable and emotive behaviour.

Think of the advancements in medicine, living standards, technology yet we can’t rationally purchase toilet paper…

This is one of the reasons that we believe despite our progression as a race, markets will remain, for the most part, irrational. Underlying fundamentals do drive the markets but whilst humans have any part in deciding what and when to buy and sell, human emotions will greatly influence market movements.

It must be so and for those that believe that artificial intelligence will smooth such behaviours, at some point humans will be involved in the decision-making process and allow their emotions to derail the best of intentions.

I’ve seen this many, many times with traders trying to trade purely mechanical or black box systems. Inevitably it’s a human that decides when to start trading and when to stop – usually being right at the exact wrong time.

It was John Maynard Keynes who said “The market can stay irrational longer than you can stay solvent.”

Artificial Intelligence has NO emotion. But humans do!..

In times of extreme stress few can follow their own personal investment plan instead succumbing to their emotional reaction to their surrounds. In such times it becomes clear those with a clear robust market approach and those whose actions are driven by their inability to control their emotions.

The current market decline that we are enduring is a “panic” driven event and must be viewed as exactly as that.

The opportunity no one sees

Australia’s RBA was the first Central Bank to blink, cutting official interest rates by 0.25%. Then by another 0.25%. Can you believe we currently have an official rate of 0.25% in Australia with recorded inflation of 1.8%?

Scomo has generously offered to meet the states 50/50 on the health costs related to fighting the Coronavirus.

It’s expected that the Federal Government will reach deep into their pockets and provide further support and stimulus to ensure Australia doesn’t grind to a halt like a Holden manufacturing plant. It seems that $189B of stimulus just isn’t enough.

This has occurred right at a time when the RBA released data showing a continued strong upswing in Housing Prices.

But what seems to have gone unnoticed by many is the effect that this rate reduction will have on asset prices. Such cuts at this time in the cycle will feed directly back into the land price once society returns to normal.

In fact, this current massive selloff in the stock market will provide investors with one of those investing opportunities of a lifetime. Not yet, but soon.

This seems to have gone completely unnoticed by the masses as they focus on their toilet paper needs instead.

There are many things humans are exceptional at influencing and controlling, but despite 1,000s of years of evolution we are unable to control our emotions.

Our emotions are deeply hard wired to our reptilian heritage. History shows us how our actions and reactions to perceived threats to our environment will be displayed.

Whether we are talking about the irrational demand for tulips in C1637, the craze of a fluffy toy with a vibrating sound box and a smiling face or our current lust with toilet paper, few investors can control their emotions. Even fewer can stick to the plan.

Unfortunately, most will look back and kick themselves that they didn’t take the opportunity to invest when they had a smorgasbord of opportunity to buy quality shares, well placed to outperform, at incredible sale prices!

But if you are still concerned about being caught short while sitting on the throne, maybe you should you get hold of the 4th of March edition of the NT Times. As the front page said “Run out of loo paper? The NT News cares. That’s why we’ve printed an eight-page special lift-out inside, complete with handy cut lines, for you to use in an emergency. Get your limited edition one-ply toilet newspaper sheets,” and true to their word you’ll find an eight-page special lift-out right there in the middle of the paper ready for an emergency.

Who said that humans can find ingenious solutions to ANY problem they face!