Caroline Ritchie: Groupthink' stops investment success

Oscar Wilde coined a good one when he said: "Most people are other people. Their thoughts are someone else's opinion, their lives a mimicry, their passions a quotation." It makes you wonder how many investors play copycat for the sake of it rather than getting something that actually suits them. Or get pigeonholed into either choice A or choice B at the local planning office because it's easier to give in to the sales pitch than to walk away.
There are numerous cases of individuals accepting investment proposals they neither understood nor needed simply so that no offence was given to the salesman. It's possibly a Kiwi thing - we're too nice. My Australian and American clients are different: they're used to pitches and angles and proposals, and they're also used to standing up for themselves, asking questions and challenging suitability. Interesting then - from an investment psychology perspective - that these two countries are significantly ahead of New Zealand in terms of financial literacy and personal wealth management success.
Financial literacy counts for more than just understanding how many cents make a dollar. It plays a large part in influencing how our banks and insurances companies see us as their market and what products they will provide us and at what prices. How we invest dictates how resources in our economy are allocated. This creates the base from which we grow and also influences our level of fiscal stability. Evidence suggests that the higher the degree of financial literacy, the more sound the economical system will be. And boy, could we use a shot in the arm here.
Avenues for getting there include higher sharemarket awareness and savings initiatives in primary and secondary schools. But the wider issue concerns the sector of society most affected by the finance company disasters and the recent share crash - the retired and elderly. This particular demographic were victims of "groupthink". Mimicking the actions of others, taking printed advertisements for granted, and playing our national pastime of thinking "she'll be right" has cost many dearly. In some cases, they were conned by the unscrupulous, but great numbers of senior investors made their own decisions to invest in suspect finance company arrangements. The $6 billion of wealth lost through our communities is a testament to Oscar Wilde's quote. Time to stand up for yourselves, investment individuals, and get your destiny under your control.
Caroline Ritchie is an NZX Adviser for Forsyth Barr in Napier and holds an NZX Diploma, BCom and BSc. For sharemarket advice contact her on (06) 835 3111 or caroline.ritchie@forbar.co.nz.
The comments in this note are for general information purposes only. This article is not intended to constitute investment advice under the Securities Markets Act 1988. If you wish to receive specific investment advice, please contact your investment adviser. Disclosure Statements for Forsyth Barr and any of its investment advisers are available on request and free of charge.