The Tipping Point

by | Aug 25, 2000 | Archives

There is no faster way to make money than to spot new trends. The surest way to keep this wealth is to understand what causes these trends.

This is why I recommend a book, the “Tipping Point” by Malcolm Gladwell.

The Tipping Point points out why most investors have trouble estimating dramatic exponential change. We cannot conceive the power of exponential growth. For example, a piece of paper folded over just fifty times attains a thickness that reaches from the earth to the sun. Yet the normal human mind can only deal with about seven cognitive categories at once so is denied a full understanding of such powers. The book then explains the power of social epidemics (such as the use of fax machines) and how Metcalf's Law helps determine explosions of use of such instruments. For example, Sharp introduced and sold 80,000 fax machines in 1984, the first year of their use. For the next three years steadily sold more faxes were sold. In 1987 enough people had faxes that it made sense for everyone to have faxes. This year (1987) was the tipping point for the fax. A million machines were sold that year and by 1989 two million machines had been put into operation.

You'll learn three rules of the epidemic in the book. These rules are # 1: The Law of the Few, #2: The Importance of Stickiness and #3: The Power of Context. These three factors are required to cause an epidemic ( in disease as well as in social change) to spread.

The Law of the Few. This law states that 20% of the people do 80% of the work. There are three types of people that are required to make an epidemic grow, connectors, mavens and salesmen. Gladwell goes into quite some detail about each personality type and the part each plays in spreading news. JFK, for example was a salesman of the bare head. Until he became President it was fashionable for men to wear hats. JFK did not and his unintentional salesmanship all but ruined the haberdashery trade.

Epidemics must also start small (with a few people) and establish themselves. A virulent virus that kills its hosts immediately can never spread because the infected people (the salesmen of the disease) don't have time to move around and spread their germs. This is true in economic epidemics as well. Small companies that learn their mistakes in small ways are then able to grow and survive.

Stickiness. Winston Tastes Good —- – ——— —–. 80% of all Americans can still to this day finish the lines of this phrase though it was first introduced in 1954. This simple jingle caught the attention of America . This and the fact that tobacco is addictive created on of the largest companies in the world. These (both the jingle and nicotine) are examples of stickiness. The Tipping Point explains this concept in great detail.

The Power of Context. In 1964 Kitty Genovese was over the course of a half hour, stabbed to death in New York City. Thirty eight people witnessed the event and not one of them called the police or attempted to help, in what seemed a statement of the cold dehumanized effects of urban life on humanity. Subsequent behavioral studies staged emergencies to learn why and found that it was not that so many people ignored the stabbing, but the fact that there were so many people watching. The studies showed that differing situations dramatically altered the way people act in emergencies. One factor that had an impact on behavior was the number of witnesses to the event. When just one person was present 85% helped right away. When over four were present only 31% provided aid. You'll learn many more factors that make society as a group act.

I earnestly believe that what I learned in this book can help me spot which trends will become fashion and which businesses will grow in the years ahead. I hope you gain this knowledge as well from the Tipping Point. I would like to open discussions on this so if you have any questions or comments send them to me at

I am so impressed with this information I will incorporate the gained knowledge into our first Inspired Investing Course which I will conduct this fall (amidst a burst of glorious autumn leaves) here at the farm. (The first 16 who sign up are welcome to stay with Merri and me in our lovingly restored farm houses). For details on the course click on

Good Investing!