When The Trend Is Not Your Friend — Twitter & Sriracha

Big Red Car here on a particularly sunny and pleasant Texas morning, y’all.

At 60F right now and headed to 85F shortly. Ahhh, a Texas winter can be so nice.

It is a trend to follow. Follow that trend to ATX and move here, y’all.

Traders say, “The trend is your friend.”

By which they mean follow the trend and let it inform your investing.

There are other trends in life which expose behavior and phenomena that are faddish behavior. Behavior that will suddenly come to an end. The end of a trend?

Two such are:

Twitter, and

Sriracha hot sauce.

Twitter finds itself in the midst of deciding what it will do when it grows up as talent is hemorrhaging and growth has stalled. [They did have a very good earnings report except for the background buzz about the talent drain and the lack of growth amongst its users. Sort of unfair with 300MM users which is not quite chopped liver, y’all. Still, that Wall Street crowd is a “what have you done for me lately?” type bunch.]

Fairness requires one to say, “So what, Big Red Car, that’s normal in business. Grow up.”

To which the Big Red Car sayeth, “Fair play to you, dear reader.”

The Big Red Car doesn’t like sharing CEOs — do your homework on that one — but thinks Twitter will find its sea legs and hire a new crew. Nonetheless, the stock price is a pain in the ass, no?

Sriracha was the darling of the tasteful palate having made the journey from Thailand courtesy of Huy Fong Foods in its unique combination of chili peppers, garlic, distilled vinegar, sugar and salt.

Originally whispered as “rooster sauce”, the recipe is supposed to go back to the 1930s in Thailand and was created for Thai sawmill workers.

Legend has it that it was first produced by Thanom Chakkapak, a Thai woman who resided in Si Racha (get it, Sriracha).

It has been used by many fast food chains and has found its way into soup, on eggs, burgers, ketchup, cocktails (The Boss will drink a bourbon and ginger ale with a drop of Sriracha, but, then who would not? If you know your bourbon drinking this is a proxy for the famous South Carolina Blenheim ginger ale, but I digress.)

Now, folks say that Sriracha has had its run and is no longer the darling of the tasteful palate it once was. [Call those guys at Tabasco and see what they have to say about longevity of all this hot sauce, y’all.]

The message is this — trends don’t last forever and the “darlings” can fall prey to reality and reality sucks.

Make the trend your friend until it ends. Don’t be the last person to realize the trend is at its end.

But, hey, what the Hell do I really know anyway? I’m just a Big Red Car and that’s one trend that will NEVER end. [Let’s get the Big Red Car a new paint job, y’all. Work The Boss on this one.] Be kind to yourself.

 

 

  • Mac

    BRC, any candidate holding a B&b mixer is going to own my vote come next Saturday….even if I have to drive to ‘South of the Border’.

  • sigmaalgebra

    The standard way to model the price of a stock is with Brownian motion. E.g., it is used in the derivation of the Black-Scholes model for option prices and is the relatively serious way to price complicated options, e.g., CMOs and other “weapons of financial mass destruction”.

    Easily enough the prices are not exactly Brownian motion, but overall can regard it as surprisingly good. It’s not always wildly wrong.

    Yes, Brownian motion is a tricky construction of pure math that really can’t exist in reality; it’s just that Brownian motion can be a good enough model for some things in reality. E.g., as botanist R. Brown once did, put a really tiny piece of pith on the surface of some water and watch the pith mover around on the surface of the water as it gets hit by the thermal motion of water molecules, and then can start to believe in Brownian motion.

    Well, on trends, the pure math version of Brownian motion doesn’t have any trends. It never has a trend, not even for a nanosecond. It never has a well defined tangent line. In the sense of calculus, it never has a derivative — e.g., for time t and Brownian motion B(t), the calculus

    limit (B(t + h) – B(t))/h
    h –> 0

    never exists. That is, keep making h smaller, and that ratio just keeps jumping around and never settles down and approaches something — never. So, no derivative, no tangent line, no trend.

    So, whenever anyone is counting on a trend, they are also saying that they believe that what they are looking at is not even approximately Brownian motion, and for the stock market, that’s risky.

    Of course, if the CFO of a company has a lot of options for the stock of that company and the stock price seems to start to go down, then the CFO might want the company to do a stock buyback. Ah, but no one would ever actually do such a thing! And if they did, then they would never let the secret leak out where a hedge fund guy might hear it — of course not!

    Of course, none of this stuff about Brownian motion influences the financial pundits and newsies who eagerly talk about trends, draw graphs and overlay big red arrows, mention chart theory with patterns, etc. on prices the Black-Scholes people are modeling as Brownian motion!

  • JLM