If you’ve been following the news lately, it’s hard to miss the frenzy surrounding Taylor Swift’s Eras Tour, especially as it hits Asia, with Singapore at the epicentre of excitement.

The media is abuzz with reports, and even financial analysts predict that the concert’s impact on hospitality revenue could potentially boost Hospitality REIT Distribution Per Unit (DPU) by an impressive 1.5%.

But beyond the glitz and glamour, there are valuable financial lessons to be learned from this extraordinary event.

Financial Lesson #1: The Bandwagon Effect and FOMO

Let’s start with the exclusive opportunity for UOB cardholders to snag tickets before everyone else. That, my friend, led to a massive increase in credit card applications. Sounds familiar, right? It’s a lot like that feeling when a new IPO comes out and you’ve got a chance to get in early.

This reminds me of the iPhone flipping story I wrote in 2014.

Now, consider the fans queuing, not out of sheer love for Taylor Swift, but for the thrill of the chase or even potential profit from reselling tickets. Have you ever felt that way about a hot stock or cryptocurrency? That’s FOMO or the Bandwagon Effect in action!

The Bandwagon Effect is all about the tendency we humans have to hop on the proverbial bandwagon because we see others doing the same. It’s like when you see a crowded restaurant and assume it must be good because so many people are dining there. You’re influenced by the collective behavior and think, “Hey, if everyone else is doing it, it must be the right thing to do!”

Now, how does this relate to stock investing? Well, the stock market can be a lot like a bandwagon. When everyone starts buzzing about a particular stock, it can create a powerful wave of influence. People see others jumping on board, buying up shares, and making profits. It’s tempting to think, “If so many people are investing in this stock, it must be a surefire winner!”

This can lead to a phenomenon known as herd mentality. Investors may feel the pressure to join the crowd and buy those popular stocks, even if they haven’t done their own research or fully understand the risks involved. They fear missing out on potential gains and don’t want to be left behind. This collective mindset can drive stock prices up, sometimes even creating market bubbles.

However, it’s important to be cautious when it comes to the Bandwagon Effect in stock investing. Just because a stock is popular or everyone is talking about it doesn’t automatically make it a smart investment. Market trends can change quickly, and blindly following the crowd can lead to poor investment decisions.

Instead, as an investor, it’s essential to do your due diligence. Take the time to research and analyze stocks based on their fundamentals, financial performance, and long-term prospects. Don’t solely rely on the hype or what others are saying. Make informed decisions based on your own assessment of the company and the market.

While on the topic of the Bandwagon Effect, I’ve noticed something else. Taylor Swift’s popularity seems to be EVERYWHERE right now.

But was it always the case? It’s like that promising startup that wasn’t on anyone’s radar until it suddenly was. Funny how trends can change our perspectives, doesn’t it?

In recent years, many K-pop groups such as BlackPink have suddenly become very popular. But if you realize that nearly 50% of their social media followers are fake, you may start to see it differently.

By understanding the Bandwagon Effect, you can avoid being swayed solely by popular opinion and make independent investment choices. Remember, the stock market is dynamic, and it’s crucial to think critically and stay true to your own investment strategy, even if it means going against the crowd.

Financial Lesson #2: The Endowment Effect and Overvaluation

Those lucky Swifties who got their hands on tickets are likely to value their way above their purchase price. That’s just human nature, and there is a term for it – Endowment Effect, a fancy term for the tendency we have to think our stuff is more valuable just because we own it.

Let’s say you have a favourite hoodie. You’ve had it for years, and it’s super comfy. Now, imagine someone offering to buy that hoodie from you. You might suddenly feel like it’s worth way more than it actually is. You might even ask for a higher price than what you’d be willing to pay for the same hoodie if you didn’t own it. That’s the endowment effect in action.

Now, how does this relate to stock investing? Well, think about it. When you own shares of a particular stock, you might develop an emotional attachment to it. You start feeling like those shares are yours, and that can cloud your judgment. You might become overly attached and unwilling to sell, even when it might be a good financial decision.

For example, let’s say you bought shares of a company at a certain price, and the stock price starts to decline. Despite all the signs pointing to a potential further drop, you might hold onto those shares because you feel like you don’t want to “lose” them. You value them more simply because you own them. This emotional bias can prevent you from making rational decisions and taking advantage of better opportunities.

Understanding the endowment effect in stock investing is crucial because it helps you recognize and overcome this bias. It’s essential to detach your emotions from your investments and make decisions based on objective analysis and market conditions. By doing so, you can avoid holding onto stocks that might not be serving your financial interests and make more informed choices about buying and selling.

So, remember to keep the endowment effect in mind when you’re investing in stocks. Don’t let your emotional attachment to your investments cloud your judgment. Stay objective, stay rational, and make decisions based on careful analysis and a clear understanding of the market.

So, why am I telling you all this?

In essence…

As investors, it’s essential to be mindful of the cognitive biases that can influence our financial choices.

Keep the Bandwagon Effect and Endowment Effect in mind when you’re investing in stocks. Don’t let your emotional attachment to your investments cloud your judgment. Stay objective, stay rational, and make decisions based on careful analysis and a clear understanding of the market.

Taylor Swift’s Eras Tour concert mania and the financial lessons from it serve as a reminder of how these biases manifest in both our daily lives and investment strategies.

So, the next time you witness a frenzy like Taylor Swift’s concert mania, take a moment to reflect and extract valuable financial wisdom from the experience!

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About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

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