Five years ago our research revealed enduring attitudes and behaviours among retail investors stemming from the rolling hangover of the financial crisis. Notably deep scars linked to fear of loss and uncertainty.
Circumstances are different in 2017 but investors are showing signs of returning to a post-crisis mind set, albeit not so much driven by fear but other factors such as a lack of trust, clarity and contradictory information in a post-truth world.
The result is the same as in the post-crisis era. Investors are gripped by decision paralysis.
When choices were made and action taken, invariably these decisions were based on ‘gut feel’ and some of these decisions were irrational.
Back in 2011 and 2012 there was a pervasiveness of fear gripping many investors and leaving them in a state of indecision while dialling up their loss aversion instincts to ‘gazelle’.
Over time this faded and the scars and memories of the financial crisis softened allowing investors to return to making choices and investments absent of fear.
Today, investors are once again retreating into their mind bunkers, how people ‘feel’ is a core factor in decision making or lack thereof.
This is not fear-led in its truest sense but trust and surplus-information driven.
In this so-called post truth world, the notion of populism and anti-elites sentiment is having some cascading influence in the investment world.
People are once again reverting to ‘trusting their gut’ at the expense of informed facts and information.
A problem with the information overload people are grappling with in this ‘enlightened’ information age is that it has great potential for causing decision paralysis.
Combine all of this with uncertainty; the surreal macro environment (central bank meddling) and geo-political turmoil (populism) and sprinkle in the idea that a lot of narrative and information driving debate is simply false, it’s no surprise people are having trust issues.
To take it a step further, if we’re honest with ourselves then we also can’t really trust ourselves. We have biases and accepted views of reality that even when presented with alternative perspectives we invariably maintain our hardwired views of the world.
From an investment perspective this is fascinating. Data can be spun just as what happens in public life by world leaders. What investments are best for you? What risk level is optimum for you? What objectives make sense for you? What pricing is best for you? All these questions are becoming more difficult for investors to answer.
So where should trust be invested?
A financial adviser? A fund manager? A robo-adviser? An investor-champion media personality? A government micro-website? Your gut?