Sharesies and DIY investing

 

DISCLAIMER: The author has no connection to Sharesies whatsoever. The firm was picked for the purposes of this blog simply on the basis of the number of times friends have mentioned the name. As normal, nothing within this blog should be construed as advice in any way whatsoever. Those interested in obtaining advice should contact the author via the website, Facebook or LinkedIn. 

I had the pleasure of moderating the presentation by Mary Holm at the Central Hawkes Bay Readers and Writers Festival this past weekend. Those of you who read her column in The Weekend Herald or listen to her interviews with Jessie Mulligan on RNZ will know how informative and enjoyable such an event will have been. She manages to answer any question in a simple and clear manner, and back-up all opinions with clear evidence from her considerable knowledge and experience.

Being New Zealand, where all investments are viewed in comparison to magnetic attachment to property investment, she had many interesting points to make regarding Kiwi's view of the stock market and factors that they may have overlooked.

One observation was that she believed many Kiwis are still scarred by the stock market fall of 1987. If correct, then this is a pity. Every market has its ups and downs and since then both markets have performed very well - especially the stock market.

Data on New Zealand house prices does not go back very far. The Reserve Bank (RBNZ) started to report the rise and fall of prices in December 1990. Similarly data on the New Zealand top 50 share performance only goes back to December 1992.

Working from data supplied by the RBNZ, the NZX 50 from the New Zealand Stock Exchange, and MSCI (for average global performance), I've produced the table below. 

Since the end of 1990 to December 2020, house prices in New Zealand have tripled. While there will of course be regional variations to this, it has surely been a good investment. By comparison, the NZX 50 has risen eight-fold. The ride has definitely been more volatile, with some large falls*. However in thirteen of the 30 years the index has grown by double digit percentages.

*Please note, the data points are at year-end so mid-year fluctuations (such as March 2020) are not represented)

To me this again shows the importance of diversification. No one in October 1987 knew when the recovery was going to come. But those who sold and ignored the stock market thereafter, have missed out on a lot.

Perhaps, therefore, it is a kind of youthful ignorance that has led to the increasing interest shown by New Zealanders, in share investment platforms such as Sharesies. By January this year 280,000 people had joined the platform, with 70% being under the age of forty (the average age being 35).

Sharesies offers an low-cost option for individuals to invest in the stock market. Currently investors can choose between 

1. Shares on the New Zealand, Australian, and New York stock exchanges, 

2. Exchange Traded Funds (ETFs) on the same exchanges

3. Managed (active) funds run by four different New Zealand fund managers.

As explained by John Anthony in Stuff: "Share-trading platforms, such as Sharesies and Hatch, let users buy a fraction of a share in listed companies and funds, meaning investors can take a punt on the sharemarket with smaller investments than traditionally required."

This last point seems tailor-made for young investors who may not have large amounts to commit.

Being an on-line platform with a young customer base, it was probably inevitable that social media should become involved in the process too. A number of chat rooms have formed on various social platforms providing a forum for discussion and recommendations. This has led the Financial Markets Authority to issue a warning. A spokesman told Mr Anthony:

"Internationally, there’s been examples of some ill-informed and even unscrupulous speculation online .... we would also be concerned if there was evidence that people were making statements on social media about a stock that they know, or ought to know, contains information that is false or misleading. This can amount to information-based market manipulation"

This increased interest from young and/or inexperienced investors has coincided with the COVID-induced volatility in the market. The FMA has also said: "We would caution against developing a new, untrained, appetite for trading on the NZX during this period of volatility and uncertainty without doing sufficient research". To be fair Sharesies has responded to this by now offering a research portal for New Zealand stocks, on the site.

Still the evidence of inexperienced enthusiasm ending in tears, appears to be mounting. 

The Australian Securities and Investment Commission studied the trading patterns through the turbulence last year. They noted trading frequency in Australia has increased rapidly, as has the number of different securities traded per day. It said retail investors are holding shares for significantly shorter periods of time, indicating a “concerning” increase in short-term and ‘day-trading’ activity. ASIC found that between February and April, “on more than two thirds of the days on which retail investors were net buyers, their share prices declined the following day. “On days where retail investors were net sellers, their share prices more likely increased the next day."

Timing the market is truly a fools errand but as with anything, experience means that costly errors are at least less likely. The FMA recommend that investors in shares take financial advice first.

Conclusion

Overall I am impressed with the likes of Sharesies and think that they could make an important contribution to helping many Kiwis accumulate wealth for themselves. 

However perhaps individual stock-picking should be treated as more akin to gambling, rather than investment, and the amounts committed to it be modest. Everyone will make mistakes, particularly early on so better to ensure that those mistakes are affordable.

For the wealth-accumulation side, where invested sums are larger, perhaps it would be better to make use of the ETFs and managed funds. Less exciting but then have you ever heard of profitable excitement?

www.dunotter.com - disclosures

Disclaimer: This communication is purely meant as information for general interest. It is in no way to be taken as financial advice or relied upon in any way for investment decisions.