The Challenge: Identifying the end of a hype cycle is difficult, but can be very lucrative.
H-Fund’s (pseudonym) primary approach is to look for opportunities to take a bearish position on stocks near the end of their “hype-cycle”, the big run that happens when a company’s product goes viral. While it was fairly easy to identify companies in a hype-cycle, it was much more difficult to accurately predict when the cycle had truly ended. “Even a small improvement in our entry timing would yield significant ROI,” one of their managers explained.
The Solution: On-Demand Research & Alerts from LikeFolio
H-Fund engaged in a one-year trial relationship with LikeFolio where they would be able to request custom reports on the consumer spending behaviors around specific sectors and brands that had recently gone parabolic.
H-Fund sent LikeFolio its hypothesis (confidentially), and LikeFolio would return a few days later with insights into consumer trends that simply cannot be achieved through traditional polling or other alternate data sets.
These reports include:
- Consumer happiness levels – spotting when consumers grow unhappy with a booming brand can be an early signal that a shift may be on the horizon
- Consumer purchase intent trends – this data gives H-fund an “insider’s look” at how consumers are reacting to the brand/product in real-time, making it possible to identify a slowdown in sales far before it becomes the headline takeaway from an earnings report.
- Consumer macro trends – these behavioral clues gave H-fund an indication as to whether the brand was “riding a trend wave” or “facing headwinds”… and more importantly, insight into when those trends were shifting.
- Competitive Analysis – By comparing their target company vs peers, H-fund is able to dynamically see who is winning the race for the early adopters.
The success story – GOOS gets cooked, and H-Fund gets a big return
One of the companies on H-Fund’s radar was Goose Island (GOOS), which makes very expensive winter coats. The brand had gone viral over the past few years, with the stock following suit. H-Fund wanted to know when the trend was over, so that they could bet against the stock.
After a few reports with no conclusive proof, LikeFolio was finally able to deliver the report that H-Fund had been waiting for – showing a massive slowdown in growth for the Canada Goose line of products.
The report for H-fund contained convincing evidence that the important winter season of 2018-2019 was the one where consumer enthusiasm for Canada Goose jackets had dried up, and the growth in consumer purchase intent mentions had stalled – indicating a high likelihood that the company would be unable to meet Wall Street’s lofty expectations.
In May of 2019, Canada Goose reported sales numbers that disappointed Wall Street, sending the stock down over 30% on the day to $34/share… a far cry from its $70 peak just a few months prior.
H-fund’s bet against the company paid off, and their appreciation for LikeFolio’s on-demand consumer insights grew. “You guys nailed that one… thanks!”