INTHEBLACK September 2021 - Magazine - Page 24
F E AT U R E
// I N V E S T M E N T B U B B L E S
THE CHANGING CONCEPT OF VALUE
Growth in asset classes such as NFTs suggests
that investors’ perceptions of value are changing.
The immediacy of social media also means the
mass market of retail investors can be informed
and influenced in real time.
Simon Russell, director of Behavioural Finance
Australia, says this can play a significant role in
individual stock levels.
“It’s quite easy to join the dots between a stock
going up a little bit and people thinking, well,
there must be something to this, and if everyone
else is buying it, it must be a good idea,” he says,
observing the sort of “herd movements” triggered
by individuals or small groups that can encourage
“pump-and-dump” schemes.
Russell adds that taking investment tips from
the internet presents a risk of confirmation bias.
“We all live in our own personal filter bubbles,”
he says. “The way that our Google searches work,
for example, predisposes us to finding stuff that
confirms our existing beliefs, rather than things
that are going to challenge those beliefs.
“It’s going to build confidence, and obviously
the risk there is that you don’t get the contrarian
or the alternative views.”
Chris Brycki, founder and CEO of digital
investment advisory Stockpot, says the internet
has removed geographical barriers, allowing
investment bubbles to flourish.
“Even in the late 1990s, the internet allowed a
lot of people to congregate together with a similar
24 ITB September 2021
“THE WAY THAT OUR
GOOGLE SEARCHES
WORK...PREDISPOSES
US TO FINDING STUFF
THAT CONFIRMS OUR
EXISTING BELIEFS,
RATHER THAN THINGS
THAT ARE GOING
TO CHALLENGE
THOSE BELIEFS. IT’S
GOING TO BUILD
CONFIDENCE, AND
OBVIOUSLY THE
RISK THERE IS THAT
YOU DON’T GET THE
CONTRARIAN OR
THE ALTERNATIVE
VIEWS.”
SIMON RUSSELL,
BEHAVIOURAL FINANCE
AUSTRALIA
interest or focus on a particular asset class,”
he says. “They’d all get excited together, and all
get fearful together about assets. The same sort
of trends that we’re seeing now on Reddit, I
remember being pretty identical back in 1999
on other internet forums.
“Obviously, the internet is now more
synonymous around the world, so more people
are on it, and therefore there’s probably more
money that can get jammed into different assets
like GameStop.
“Perhaps that’s why the dollar value of moves can
be bigger. We’re currently seeing a few pockets of
asset classes going up by an astronomical amount,
and that gets people interested in markets.”
CASCADING BUBBLES
Investment “bubbles” are so called for a reason – they
inevitably burst, often leaving a mess in their wake.
Henckel describes a bubble’s “cascading effect”.
“You get the early adopters, who are the big risk
takers because they are savvy enough to think that
people will latch on to this kind of technological
innovation, and they clearly are trying to make a
profit,” he says.
“Then, it just trickles through the economy.
Sometimes you get a couple of big adopters, like
Elon Musk, for instance, who convince the crowds
that it’s a good thing, so they start piling in as well.
Think about the dotcom bubble. That’s basically
how it went as well.”
Henckel adds that the “ma and pa” investors
tend to join in at the peak of a bubble.