Article written by InvestNow – 27th April 2023

Stuff happens all the time.

Stuff such as the November 2021 float of NZ-founded shoe company, Allbirds, on the US stock market.

“Investors in Allbirds could have almost doubled their money,” ran the Stuff headline the following day.

The Stuff article quoted then-head of US share-trading outfit, Hatch, Kristen Lunman, talking up the “exciting” Allbirds buzz.

Hatch, along with fellow NZ retail stock-trading platform, Sharesies, opened up pre-order lines for Allbirds ahead of the initial public offer (IPO).

“We are stoked to see fellow B Corp Allbirds express interest in listing on the NASDAQ!” Sharesies told its social media followers.

“You’ll be able to buy shares in this iconic Kiwi company through Sharesies as soon as it begins trading in the US under the ticker BIRD.”

IPOs, of course, are always prime financial news fodder but the Kiwi company hitting the NASDAQ big-time sparked a general feeding frenzy among NZ media.

Everybody heard about the BIRD.

The barrage of local press coverage undoubtedly boosted NZ investor interest in Allbirds, which saw its share price rise from the US$15 float value to almost US$29 by the close of trading on day one.

“We have seen such a high level of activity today from Kiwi retail investors,” Lunman said at the time. “We think most people are just excited to support a brand that focuses on better outcomes for the planet.”

If excitement – along with fear – is stock-in-trade for media headline-writers, such emotional triggers tend to backfire for investors.

While keeping track of news is useful for investors, the non-stop flow of results, events, reports, decisions, surveys, opinions and gossip – amplified and/or falsified today via social media channels – can often influence poor decision-making with long-term financial consequences.

InvestNow founder, Anthony Edmonds, says investors need to stay informed without feeling pressured to act by the infinite pipeline of emotive news.

“Successful investors know how to discriminate between facts that affect their own situation and hyped-up headlines designed to generate attention,” Edmonds says. “The ability to tune-out background media noise is an important skill – and one of the InvestNow key investment principles – being to stick to your long term strategy, while ignoring the noise.”

For example, he says the current era of high inflation and rising interest rates has seen an endless supply of news articles in NZ press speculating on a ‘looming recession’ and the fate of house prices.

Here’s a few random samples from the NZ Herald displayed in a section together on the same day:

• What shock inflation means for house prices, interest rates
• Inflation headache for homeowners: Experts warn of ‘vicious cycle’
• Is this the beginning of the end of the housing market slump?

“Are house prices stuck in a vicious cycle or on the up?” Edmonds says. “Who knows? Not the NZ Herald. Not anyone, really. And no one should be making such an important financial decision such as buying or selling a house based on editorial whimsy.”

Similarly, he says managed fund investors should consider their own personal circumstances carefully before making radical portfolio changes in response to media-driven narratives about an economic slowdown or the direction of interest rates.

“If you have set your portfolio asset allocation up around long-term goals, it shouldn’t change at all just because of short-term volatility,” Edmonds says. “Of course, there may be opportunities at the margin as interest rates rise to manage your cash more efficiently, for instance, but trying to time market changes by making big moves in asset class allocations rarely, if ever, pays off.”

US research firm Dalbar has been measuring the investor market-timing gap for more than 30 years with its latest report, published in April, confirming 2022 followed the long-term trend.

In 2022 the average US share fund investor lost over 21% compared to the -18.11% return for the S&P 500 index, the Dalbar Quantitative Analysis of Investor Behavior (QAIB) report says.

Over the 30 years to the end of 2022, the average US equity investor has accrued annualised returns of about 6.8% versus 9.65% for the benchmark, according to the Dalbar data.

Cory Clark, Dalbar chief marketing officer, says in a release: “Nobody wants to look at their account statement and see a -20% return. However, the reality is that markets will, about once every 10 years, experience a year like 2022. That hasn’t stopped the markets from providing solid long-term returns to those patient enough to wait it out. It’s okay to sink a bit with the lowering tide because you’ll eventually rise back up with it. Investors’ main concern should be making sure they are not adding to losses through an irrational attempt to avoid them.”

And investors who have held their nerve have been rewarded, albeit modestly, with the S&P 500 Index rising by over 6% this calendar year to date.

While Investors trying to time market movements in line with the media move through fund switches may lose out relative to indices, they should at least retain some measure of diversification: anyone who went all-in on Allbirds amid the 2021 media celebrations would not be so lucky.

Allbirds last traded at about US$1.30, equating to a loss of roughly 95% from the peak price, with a class action lodged against the shoe company this April alleging the 2021 prospectus was “false and misleading”.

Stuff-ups happen all the time. To avoid them, investors should focus on sticking to their long term strategy, while ignoring the media-fuelled noise!