Prices always rise from the ‘leader.’ Thinking objectively.

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Someone told me many years ago that if we buy a property in a perceived good location, one will never go wrong. Well, the statement is half-true because we still need to make sure what we bought was not overpriced, first. Else, it will be a long wait before prices for all similar properties in the same area appreciates to the level we bought. How do we know? Compare lah. Look at actual numbers as well please: brickz.my Then, what about the rest of the not-so-awesome areas then? In case everyone has since forgotten, many of the so-called good locations today were once upon a time shunned upon too. We just need to remember that prices will always rise from the market leader first, followed by all the rest. This is how prices actually move in the world then, today and future.

Smartphones – The brand perceived as the market leader (best Operating System etc) gets to price its phones first. Let’s say, they (market leader) priced theirs at RM4,800. Will the perceived second best brand priced their phones at RM4,800 and offering much better specs? (except the Operating System). It will be tough because then this second placed brand will lose a lot of market share because many users will buy the market leader first and for users who could not afford RM4,800 then they will buy another brand with nearly equivalent spec for less than half of RM4,800. This is why the second-placed brand will price their models lower than RM4,800 but still at a slight premium compared to the 3rd placed brand.

Cars – Imagine the mass-market car brand in a particular country with the highest market share versus the other top 5; second, third, fourth and fifth. Do we think the latter few will increase their prices first and then followed by the market leader? Generally, the market leader will price their cars first and it usually carry a premium even if the specs are similar to the 2nd, 3rd, 4th and fifth brands. This is how pricing strategy is derived and this is why BRANDING is given a value as well. (read here to understand more) Alternatively, the top brand may be priced almost the same but is may have 2 air-bags versus the 5th placed brand which had to provide 4 air-bags and still priced slightly lower. 😛

Stock market. In a bull market, the perceived bluechip stocks will rise in their stock prices versus their earnings first. Thus, their prices may rise to 24 times its earnings for example before stocks in similar businesses rises to 16 times its earnings. We seldom see bluechip stocks rises the last or become a follower to other stocks. The reason is because investors are much more familiar with these bluechips and tend to chase them first. Once prices become a little too high for comfort, they will then chase up the prices of stocks with similar businesses or in the same industry.

Locations. Imagine KLCC condos with RM500 per sq ft today. It meant that everyone working within Kuala Lumpur will all be staying in KLCC area. No one would want to pay RM500 per sq ft for areas further away from KLCC. Bangsar? Bangsar South (Kg. Kerinchi)? Sunway? Damansara Uptown? This is true even for Melbourne, Sydney and Brisbane, for example. The city centre rises in price, first. This is where most of the jobs are, usually the highest paying ones too. The suburbs will then follow in tandem but never exceed the prices in the city centre unless something special happens in those suburbs. Happy understanding objectively.

written on 9 March 2019

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