Dan Petrie: Greed, not FOMO, should drive financial investment

Low interest rates, bitcoin at record highs and a generous fiscal stimulus have fuelled more Aussies than ever before to hungrily jump into share trading. What could go wrong, asks Dan Petrie.

Remember when barbecue chat stuck within the simple confines of the weather and the Broncos?

Nowadays, you’re more likely to flip a snag and hear: “I have a bit of crypto and I’m having a punt on a few shares.”

While “I get nothing for my money if it is in the bank” is the other common refrain one tends to encounter when reading the proverbial tea leaves around investment in this country.

What use is due diligence and research when FOMO (the fear of missing out) is driving Queenslanders to pile their finances into shares, property, cryptocurrencies and even exotic motor vehicles in a bid to drive a greater return than the humble term deposit.

Australia’s ASX 200 – the benchmark index of this country’s largest companies – is at a record 7,379 points having risen 23 per cent in the last year as Chinese demand for iron ore and Australia’s much loved property market fuel the latest boom.

Closer to home, Deloitte’s Queensland Index of ASX companies (169 companies in total) has outperformed the ASX All Ordinaries, Hong Kong’s Hang Seng, the United Kingdom’s FTSE and Japan’s Nikkei since 2002. Take that, New South Wales!

Such comparisons between markets and the composition of different indexes clearly come with caveats but make no mistake, Australians are getting into investing like never before.

According to the ASX, 46 per cent of Australians or nine million people had investments outside their home or superannuation fund, up from 37 per cent in 2017.

The latest data from the Australian Stock Exchange’s 2020 investor study reveals that more than a third of Australians rely on family and friends while 18 per cent of Australians use social media as their primary information source for investment decisions.

Record low interest rates, stories of Telsa boss Elon Musk propelling bitcoin to record highs, and a generous sprinkling of fiscal stimulus have only fuelled the FOMO as more Australians than ever before open up share trading accounts.

What could go wrong? I don’t know, maybe a lack of financial literacy, ignorant investors entering the market at a record high, good old-fashioned hubris and the economy running out of steam because no one is allowed to enter Fortress Australia spring to mind.

In the absence of rehabilitating my now lapsed RG 146 license application (a fairly straight forward qualification which allows one to pontificate about Australian stocks), observing the FOMO phenomenon is absolutely frightening for disciples of famed U.S. investor, Warren Buffett.

Buffett, affectionately known as the Oracle of Omaha, advises to “be fearful when others are greedy and be greedy when others are fearful”.

Everyone is talking about Bitcoin at barbecues. Picture: iStock

The only challenger to the Oracle is the late John ‘Jack’ Bogle who established financial heavy weight Vanguard in 1974 and pioneered index funds or what is commonly known as the Exchange Traded Fund (products which the track the ASX 200 for example).

Bogle’s philosophy was to democratise investing and allow people to track the market. In other words, buy and hold.

Bogle who passed away in 2019 was born in 1929 on the eve of the great depression and gave away half his salary while championing financial education in a country where less than half of all Americans fail to pass such basic tests.

Financial literacy, or lack thereof has historically been the weakness that has badly exposed Australia’s financial system with the Melbourne Institute’s Household, Income and Labour Dynamics in Australia survey revealing only 55 per cent of us are financially literate.

That said, the culture of women saying, “I let my husband take care of that” has to change with more than 60 per cent of Queensland men considered financially literate versus 49 per cent of women who are comfortable with finance.

For investors, wins are memorable but the losses leave the deepest of scars, as evidenced in the findings of the Hayne Royal Commission into the wealth practices of Australia’s banking system only two years ago.

With the latest surge in investor sentiment into stocks, it appears the squeegee of amnesia has wiped the window of memory clean in regards to banks behaving badly.

If we put financial literacy front and centre of the conversation around investing then we mitigate the risk of repeating history while making for good barbecue conversation.

To borrow from Mr Buffett, in the area of financial literacy, Australians can never be too greedy.

Dan Petrie is the Chief Information Officer of data analytics firm, Grafa and a former Economic Data Editor at Bloomberg LP who also goes by the name of Data Dan – do you have a data question? Email [e-mail]