IRRATIONAL EXUBERANCE -- THE HELLO KITTY CRAZE

In 2000, MacDonald's in Singapore sparked off a Hello Kitty Craze. People were going crazy over pairs of Hello Kitty dressed in wedding costumes. A different pair was offered every week. The first pairs released by MacDonald's quickly sold out, and people started offering high prices to people willing to resell theirs. Within a short time, prices on the resale market reached ridiculous levels. Profiteers started queueing up for the latest pairs released every week (for the express purpose of making a quick buck by reselling them), creating an even greater supply crush. Suddenly, these dolls became must-haves, worth queueing up hours for. Even people who would never ordinarily buy toys, or have no interest in Hello Kitty, started trying to get hold of them.

I remember that year, a friend of mine queued up for at least half a day to get the latest pair of Hello Kitty dolls. When she managed to snag a pair, someone approached her and offered more than $500 for it. What had it cost her? Less than $5.

Of course, as such crazes go, the demand tapered off after a while. A few years later, the same dolls could be found a-begging at night markets for about $2 a pair.

The lesson here? Be careful when people start rushing to buy a certain item (whether it's Hello Kitty dolls, shares, or homes) and prices start going up very fast. If you have that item and you can make a good profit from such irrational demand, it's time to consider cashing out.

And more importantly, if you're tempted to join the rush, be careful of paying prices which cannot hold up over the long run. Think of the people who had paid hundreds of dollars for these Hello Kitty dolls. Today, those dolls are worth almost nothing.

On a related note, think carefully when buying anything that's 'in' or 'trendy', even when the prices are reasonable. Ask yourself: Do YOU really like it? For example, if you don't enjoy Harry Potter that much, why be the first in line to buy the hardback edition on the first day just because your friends plan on doing so? Remember the opportunity cost. You could be spending that money on something else that YOU really, really want.