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Should You Invest in Pop Culture Companies?
Whenever a new trend appears in pop culture, it can feel like you can scarcely avoid it. The new hot movie star of the moment seems to be everywhere. The “it” gift for the holiday season is on every news site and on tons of programs. The new revolutionary gadget is everywhere.
It’s the kind of success that any company would love to see. It means a ton of additional revenue for the company — and probably profits, too. That, in turn means a big boost in the company’s stock price.
But what about you, the individual investor? Can you capitalize on those pop culture trends? Is it a smart move to invest in pop culture companies?
How pop culture affects the stock market
Investors make investment decisions based on the information available to them. They buy in response to, and ahead of, good news that indicates a certain investment may have better returns in the future, and they sell in response to bad news.
But how does news about pop culture trends weigh into this?
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Pop culture affects the stock market only in terms of whether it can easily translate into products sold because that’s what shows up in a company’s earnings, and that’s what investors actually care about. Simply being talked about isn’t enough.
This study by Mihály Ormos of the University of Budapest indicates that general economic news has a much greater impact than individual headlines in terms of affecting stock prices. In other words, things like unemployment data and corporate earnings reports have more to do with a stock price than the current success of a company’s product or a pop culture trend.
So, does pop culture affect the stock market at all? Yes, because it impacts those factors going forward. A company with a hot product is going to produce better earnings reports in the future, and that’s what the stock market cares about. As economist Jeremy Siegel pointed out on a recent episode of economic podcast Marketplace, most economic numbers are reports about the past, but the stock market really only cares about the future and corporate earnings reports, not media coverage.
A tale of two pop culture stocks
Let’s look at two publicly traded companies that have had a big cultural splash over the last several years — Funko (FNKO) and Crocs (CROX).
Funko is a pop culture company, through and through. It’s best known as the makers of Funko Pop! vinyl figures, distinctive figurines of all kinds of different pop culture characters, from superheroes to characters from The Office. The company is poised to capitalize on pop culture trends, as it can design a figure within 24 hours and have it on store shelves within two months.
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Yet, looking at its stock history, you’ll notice a steady rise without any sharp spikes, followed by a sharp fall in 2019. Why did that sharp fall happen? It wasn’t a pop culture trend — rather, it was due to a “challenging retail environment” and extra costs from disposal of slow-moving inventory. In other words, one of the most pop culture oriented companies had its stock value driven mostly by internal business decisions and their consequences, not cultural trends.
What about Crocs? It’s been vilified in pop culture, yet its stocks seem to be thriving. How did that happen?
Again, it has more to do with business decisions and actual sales numbers more than pop culture trends. Crocs quietly added a lot more variety to the shoe’s standard appearance while continuing to appeal to many people who simply didn’t care about pop culture trends, like designing comfortable and convenient shoes for nurses. In other words, while Crocs may have had a bad pop culture reputation for a long while, it focused on what actually sold Crocs, not what made them popular — comfort and convenience. Its sales numbers have remained good, regardless of its pop culture cache.
Should you invest in a pop culture company?
What can we learn from these examples?
First, a pop culture trend, either positive or negative, may or may not line up with sales. With Funko, it intentionally capitalized on lots of pop culture trends, but its stock price had more to do with actually selling their figures and on overproduction. With Crocs, it was mocked in many areas of pop culture, but it found success — and lots of sales — by focusing on its product in less culturally relevant areas.
Wall Street cares more about sales numbers — particularly those going forward — than on pop culture success. With some exceptions, investors would rather own shares in a boring company with strong sales than a company with great media coverage that isn’t generating a ton of revenue.
Still, there are sometimes individual events that can really boost a company’s earnings. If they announce a truly revolutionary product, not only will it capture the news cycle and be prominent in cultural conversations, it’ll generate tons of sales as well.
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In short, rather than investing in a company because it has a lot of pop culture cache right now, or avoiding a company because it’s unpopular right now, stick with investing fundamentals instead. Ask yourself why you’re investing — not because a company is cool, but because it will make you money. There’s a temptation to treat investing like it’s a video game, where you respond immediately to stimuli, but it’s an exercise in patience, not in quick responses.
If you’re interested in investing, instead of starting by looking at pop culture news, learn the basics of investing, including such basics as what stocks and ETFs are. What actually makes an investment go up and down in value? What numbers should you really be looking at? Along with patience, knowledge is the route to making money with investing.