So why is it exactly that we get caught up with ‘the crowd’? We are surrounded by people in our everyday lives – friends, family, colleagues and so on. We try to listen to our own intuition and our independent thoughts, but often we’re influenced by those around us – sometimes without realising. Another factor is the abundance of information readily available to us.
It can be difficult to own a money-generating asset – historically speaking, too. You can’t drive past a successful business and just go in and buy part of it. On the flipside, you can buy a part of some very big companies online – in fact, you can simply get on the internet and buy a share in companies like NAB and Amazon at the push of a button. And the best bit about having these shares is that you can own part of the biggest companies around the world without having to know what they are or how they operate. To buy an asset and sell it later at a profit is the best way to make money – and this is often what happens with shares.
In the third instalment of our biases series, we are asking: why do we believe fake news? Why do we believe stories or things that aren’t necessarily true?
Most people have some money saved for their retirement. Whether this is in superannuation or across other investments, they have generally thought about their retirement and are preparing for it. The issue is that many people are not proactive about their super. Each year, or each month, they get a balance statement, and if they see it has gone up, they are happy and think ‘I’m on track’. Unfortunately, that is not enough. The fact that the balance has gone up is actually irrelevant to whether or not it will be enough for them to retire with.
People put a lot of focus on the price of assets; specifically the price of shares.
Why is it so hard to fix our mistakes? Sometimes, decisions are not black and white – especially when it comes to our finances. We have many decisions to make when it comes to our financial future – but we get things wrong sometimes. The second part of our ‘biases’ mini-series explores our mistakes and why they can be hard to fix.
Everyone knows that company share prices go up and down – that’s a fact. What we don’t know is why they do – that is, what external events will affect the share market and when. Of course, there are people devoted to doing this for a living, and some people are more informed than others about trends in the market. What we are saying is that it’s not possible to predict exactly when a crash or a boom in the market will happen – the only thing we know for sure is that it will.
Think about term deposits. What words or phrases come to mind? How do people often describe them? Safe. Secure. Low-risk. Guaranteed return... Today, we’re going to prove why these descriptions are problematic.
You’re entitled to your own opinion, but you’re not entitled to your own facts: one of Dallas’s favourite sayings of all time.
Are price and value the same?
Actually, price and value are very different. Take ‘the hamburger test’ as an example – the price of a hamburger has gone up significantly in the last 30 years, but the value has not. What that means is, if you buy a hamburger now as opposed to 30 years ago, you’re still just getting a hamburger, but now you’re paying a lot more for it due to inflation. The price is different, but the value is the same.
Dallas Davison, Michael Hogue and Ali Hogue.