The Dramatic Impact Of Crossing A Threshold

The Dramatic Impact of Crossing a Threshold

In 1994, Hush Puppies – an American brand for footwear – was on the verge of being shut down. As the annual sales had been reduced to mere 30,000 pairs, it was turning out to be economically nonviable for the founders to run it. And then, something really strange happened.

 

All of a sudden, its shoes had started to become a rage in the bars and clubs of Manhattan. People were going crazy and buying them from the little stores that stocked Hush Puppies in their collections. Things began to change. In the year 1995, it sold around 4,50,000 pairs and won the award for the best fashion accessory at the Council of Fashion Designers. In 1996, it almost quadrupled its sales.

 

And it all started with a handful of kids who started wearing its shoes because nobody else loved wearing them. An idea of wearing shoes to the clubs, cafes, and streets revealed their fashion statement to the other people, surpassed a threshold level and scattered like a wildfire. 

 

From those kids, the mania of wearing Hush Puppies propagated to a fashion designer John Bartlett who used to dine at one of the cafes where those kids used to hang out. He used its footwear to showcase his spring collections. From him, the fad was captured by another Manhattan-based designer Anna Sui and eventually landed at one of the fashion shows at Los Angeles.

 

Hush Puppies

Image: Shoes by John Bartlett for Hush Puppies | Source: Detour Magazine

 

In a matter of just 2 years, the brand began to find its place in the wardrobes of Princess Diana, Comedian Jim Carrey, Musician David Bowie, and Actor Sylvester Stallone.

 

Image: Princess Diana Wearing Hush Puppies | Source: Purse Blog

 

Unknowingly, the notion of wearing Hush Puppies crossed a certain level of threshold and spread like a pandemic. The fad passed a certain level of threshold in stardom and in a matter of just 2 years, it went from a motley bunch of kids and designers to every shopping center in America. 

 

I stumbled upon this case study while reading the book The Tipping Point. Written by Canadian journalist Malcolm Gladwell, he explains that any well-known idea or a trend starts really small, reaches a certain level of threshold, tips to spill over to countless people and leaves a positive or negative dramatic impact.

 

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Now, let’s talk about its relevance in the financial world.

 

More often, we grossly underestimate the importance of saving just a few thousands of rupees every month. The reason we do it because it doesn’t make us instantly rich. But over a period of time, these few thousands add up, cross a certain level of threshold and start compounding dramatically. 

 

For instance, an investment of Rs.10,000 per month @12% doesn’t look substantial during the initial phase of the process. It hardly seems to make any compelling difference. But when it reaches the 11th year, it crosses the threshold point and becomes evidently noticeable. The Total Interest income it generates through compounding exceeds the Total Deposits you make during this period.

 

Image: When Investments Cross the Threshold Point

 

A long series of investing a few thousand rupees multiplies slowly until it tips the benchmark and compounds energetically.

 

Likewise, during the mid-90s, the trend of buying technology stocks had started gaining the momentum day-by-day. Just like the wheel, the invention of which was termed revolutionary, the Internet was labeled as an earth-shattering creation that possessed the potential to bring a profound change in human lives.

 

Given the investor frenzy for anything remotely connected with the Internet, many dotcom start-ups in the US managed to raise capital at outrageous valuations, despite their flaky business models that held little promise of generating meaningful profits in the foreseeable future.

An excerpt from the book Bulls, Bears, and Other Beasts

 

The craze multiplied rapidly, tipped the scale, and the behavior to buy technology stocks (despite their unreasonable valuations as well as uncertain future with unsubstantial business models) spread like a wildfire among the investors across the globe. In fact, in the US, people with almost no history of investing were found selling their homes in order to accumulate shares of technology companies.

 

Having said that, the similar trend was observed during 2017 in the Indian stock market when retail investors like you and me were found loading up Small and Midcap stocks. When it crossed the threshold level, the fad escalated to millions of investors who infused their savings to amass these stocks and funds. As a consequence, in just 1-year, the S&P BSE Smallcap Index touched a high of 20,046 on 15th Jan 2018 from a base point of 12,872 a year before on the same date. An absolute change of 55.73%.

 

Image: BSE Small Cap Index | Source: Moneycontrol

 

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After having observed a lackluster support from his fans, the Captain of Indian Football Team – Sunil Chhetri – uploaded a video on Youtube on 2nd June 2018. In that video, he was found requesting people to support the Indian team during the Intercontinental World Cup.

 

Initially, his impassionate appeal moved around at really a small level. But later on, it surpassed a certain level of threshold, spread from person to person and went viral on social as well as mainstream media. Millions of Indians outpoured their emotional support and ensured that not even a single seat of the stadium would go vacant in the rest of the matches. The kind of support the Indian team received was unimaginable. Eventually, India won and lifted the World Cup. 

 

On similar lines, the dance video Gangnam Style crossed its threshold limit, the craze spread from one person to another and affected the masses. As on today, this Youtube video has amassed 3.2 Billion views.

 

Precisely, the same principle explains the outbreak of Spanish Influenza in 1918. It crossed a certain level of threshold, multiplied rapidly among people and killed more than 40 Million in just 2 years. 

 

Undeniably, when an idea crosses its point of threshold, it unleashes a major change and leaves behind a dramatic impact !!!

 

 

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Related Post: What Is Your Financial Tipping Point by Nick Maggiuilli

The cover image has been taken from Rebrn

 

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