Going against conventional wisdom is one way to make stock market profits. That's why it pays to watch out for those memes.
Memes roll across society. They take hold of the population, hollowing out people's brains making them do things they wouldn't normally - just like "Invasion of the Body Snatchers".
The term was first defined by Richard Dawkins in his 1976 book "The Selfish Gene". It is a "cultural unit", such as an idea, that can be passed from one person to another. Like a gene, it replicates itself, sometimes mutating and transforming.
Memes can be spread by newspapers, news bulletins and TV programmes all talking about the same thing. Dinner party conversations only have one topic.
Then, all of a sudden, the power of the meme dissipates leaving barely a trace. Everything returns to normal. It's as if the lights come on in the cinema and despite being scared witless during the movie, you realise "Invasion of the Body Snatchers" was really rather silly.
The modern world is full of memes running riot. A current example is house decorating programmes on TV. The highlight of each show is when estate agents are invited to reveal exactly how much money people have made from the property. It gives the impression that property investment is as easy as falling over.
The world of investment has a surfeit of such out-of-control memes -- pieces of received wisdom that people repeat unquestioningly.
That's how sectors come in and out of fashion. It's also how right-thinking people come to pour money into crazy businesses at crazy prices.
Memes, though, are good for investors. When everyone is repeating the same thing, there's a strong chance they're wrong. So we can trade the meme market taking positions against the received wisdom. To do so you have to be brave as you will condemn yourself to being unfashionable, shunned by the IT-crowd and the butt of some rather nasty jokes. It's worth it though.
Amongst the sectors vilified by investors at the moment are:
- House building and construction - stock market investors, thinking themselves superior to the television-watching masses, believe that there will be a housing market crash, so they've pushed down the price of builders and property companies. After yesterday's falls it might be worth putting Slough Estates
(LSE: SLOU)
on the watch list.
- Retailing - company after company is issuing profit warnings and announcing declining sales. However, I believe the doom and gloom has been overdone, largely thanks to newspaper headlines screaming that the British public has maxed out its credit cards. Ones to add to the watch list are, after the falls yesterday, Blacks Leisure
(LSE: BSLA)
and Alexon
(LSE: AXN)
.
- Telecoms - shares in telecoms firms are depressed. This is partly because people who bought into the growth stories of the 1990s have finally had enough and thrown in the towel. It's also because price competition in the broadband market has led many to believe that telecoms shares are doomed. In this sector, Vodafone
(LSE: VOD)
and Plusnet
(LSE: PNT)
look interesting to me.
Of course, trading the meme market can be dangerous if you haven't done your research, because there will always be companies that deserve cheap share prices. There is also the outside chance that conventional wisdom is right.
Normally, though, out-of-control memes can point the way to investment profits.
Paul owns shares in Vodafone.
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