Good News Goes Unheralded

The vast majority got it wrong.

The wonderful performance of many financial investments so far this year has been largely unheralded. While many markets haven’t nearly regained all the ground lost in the recent downturn, they have still made strong recoveries.

The survey, by RaboPlus, took place in August, so let’s look at what happened in the six months ending August 1 and the six months ending August 31 – to roughly cover the “past six months” for everyone in the survey.

New Zealand shares rose 9 per cent in the earlier period and 24 per cent in the later period, according to data from MCA NZ Ltd.
Australian shares rose 24 per cent and 32 per cent. Overseas shares hedged – which means the value is not affected by changes in the New Zealand dollar – rose 23 per cent and a stunning 39 per cent. And commercial property rose 3 per cent and 11 per cent.

And don’t forget these are all figures for just six months. They translate into annual rates of a bit more than twice as much.

True, there were some negative figures. Because of the rising Kiwi dollar, unhedged overseas shares declined 2.6 per cent in the earlier six months, although they grew 7.1 per cent in the later period. And government stock declined 2.0 per cent and 1.3 per cent – the result of yields rising over the period as global confidence increased.

To complete the picture, A grade corporate bonds grew a little, by 0.6 per cent and 1.6 per cent.

It’s hard to imagine that many New Zealanders were so heavily invested in either unhedged overseas shares or government stock that their total financial investments lost value – given the huge gains in most share investments.

And yet huge numbers are apparently unaware of how well most markets have been doing – with older, female and lower income people even more likely to have got it wrong, the survey shows.

How come? Perhaps the survey is inaccurate. It was conducted online and included “a random sample of 1,000 New Zealanders”, says RaboPlus.
Not everyone is online, and not all those online would respond to a survey.

But even if the results were a little off, we would still have a large majority who haven’t been watching the markets this year.

Why might that be? Perhaps they’ve been too afraid to look since the financial crisis set in. Lots of research finds that investors tend to be more upset by losses than they are cheered by gains.

For example, one study asked if people would prefer to receive either
(A) $1,000 or (B) a toss of a coin that would give them $2,000 or nothing. Only one third chose B.

But if they were asked whether they would prefer to lose either (A) $1,000 or (B) a toss of a coin that would take away $2,000 or nothing, two thirds chose B.

The researchers concluded that people hate to lose, so they are more likely to take a risk to avoid a loss than to boost their gains.

Human nature or not, it seems a pity that so many investors have missed out on the recent great news. Now you know!

A final note: Just because share markets have performed so well this year doesn’t mean that will continue. It’s impossible to predict share market performance.