Forget stocks, real estate, even cryptocurrencies — China’s hottest investment nowadays is Nike, Adidas, and Puma basketball shoes. Imitating a trend that harkens back to the Tulip mania in Europe in the 1600s, trading volumes on online “sneaker exchange” platforms in China are reaching dangerous levels. Consumers travel hundreds of miles, get in on the lottery to stand in line for days on end, ahead of the launch of the latest Air Jordans or Kanye West’s Adidas. The lucky ones get into the store and buy them, and then flip the shoes for sale at one of the many sneaker exchanges taking in profits approaching 5000 percent. 

Some have quit work or school, begun to buy these sneakers and stack them in their apartments with the hope that each one of these $100 shoes will be worth many times more in the exchanges. And there is no shortage of exchanges – Chinese sneaker-trading platforms like Poizon, enjoys annual trading volume of around 15 billion yuan, that is more than triple the volume of StockX, the leading US online marketplace platform.

How and why did this lunacy take shape is the right question.

Future Wealth’s View

There is a saying that goes – “Everything that happens once can never happen again. But everything that happens twice will surely happen a third time.” The tulip mania in the 1600s was followed by railroad frenzy in the 1800s and more recently, the dot com bust, home mortgage crisis and bitcoin debacle and now the sneaker hype.

There are several underlying reasons for each of these disasters but the one common thread that cuts across every one of them is greed. When rational people start to do irrational things, an entourage develops and then transforms into a groundswell and eventually everyone wants in on it, and the fear of being left behind takes over. Then, as always, disaster hits.

Before investing, understanding the fundamentals of the investment vehicle and the exposure it provides to the different levels of risk, return and volatility is by far the most important lesson of all. One may miss on the next big trend and it is possible that one may well become extremely wealthy on an investment without any knowledge. But, the key is to stay away from speculation. Sometimes painful things can teach us lessons that we didn’t think we needed to know.