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Follow the Investing
Herd at Your Peril
Popularity has its pitfalls,Colin Bloodworth explains
n financial planning and business ingeneral,we can be our own worsf
enemies.We are too often drivenby
emotion and the fear ofbeing'leftbehind." This appliesto many different
fields.Let's look at some of them.

Ithe long term, thisstrategypays dividends-provided you sell only when prices arehigher than they were duringmost of thetime the plan has been running.

Investing in stock markets should be forthe longterm. Buyingwhen there is aboom and then sellinginpanic when
prices fall is a recipe for rjisaster. Yet thisis what many people do. When everyone
was buying into techology stocks in thelate '90s, Warren Buffet, one of theworld's shrewdestinvestorsand still oneof the richest men in the world, wasinvestinginunexcitingthings like paint
When the markets m h e d in March
2000 his investmentsheld up. He knew it
was best not to followthe herd.

everyone's wishlist Ifyoua Property
you We and it is affordable,nothingshould deteryou. But if you are temptedto speculatebecause It appears there is a“gold rush" ina segment of the market,
you could end up in tears.

stod<marbm

No one wants to be left out of a successstory. Similarly,no one wants to be associated with failure. The resultis that people
tend to buy when the popularityof a product or asset drives prices up and sell when
they fall. Throughout the historyof
mutual funds, sales have been lowest
when markets are down and highest
when markets are booming. ~ utotmake
money, investorsshould do the opposite.
The problem is we htinctively follow theherd.
Amore recent example was the public
offeringof Facebook shares. When theshares were launched on May 18,theywere priced at $38. Now they stand at justabout halfthat
Investors rushed inon reports that the stock could rise 50
percent within days. Instead,those who
haven't jumped shiphave lost 50 percent
What is interestingis howthe herd was
running in one k d o n u p to the IPO
an'd howit quimtutailrnM
the otherway at the first hint that things
were not going accordingto plan.
One way to remove the human element is to invest gradually and r e f l ~ l ythrough all market conditionsvia a EgUlar savings plan.You thenbenefit from['cost averagingwhich means that YOU
buy more units or shareswhen prices are
low and fewer when they are high. Over

Property

owninga property is likely to be on

The worst example in recent years was
the rush to buy homes in the United States
thanks to the availabilityof easy financing.
The lo- were based on an assumptionthat prices would continueto rise.As weall know, mey didn't Instead home values
went into a free fallthat sparked the banking crisis and financialmeltdownof 2008.
Thosewho came off worst were the tensof thousands of homeowners who were.
forced out of their properties.The banks
lost heavily too, but they were rewarded
with generous bailouts so they could
make the same mistakes again!
Anypne who has spentye& working as
an employee will dreamh mtime to timeof "bekgke" ind owninghis or her own
business. ~ uastanyonewho has made thetransitionanswill
testify, it is not
smooth sailing.In selecting a business, it is
temptingtolook at successfulexisting
businesses and hope to enjoy equal suecess by joining those alreadyin the sector.
Chances are that otherswill enter too forthe same reason, and by the time they are
all set up, there are too many in the field.
Even bigbusiness makesthe same mistakes. If you havebeen to Bali recently, you
cannot have failed to notice the huge number of hotels springingup.New three-star
hotels are offeringroomsat less than $30 anight re at for c~nrmmers,
but are theyg o h t o be commerciallyviable for thesowMchwayshouklyou#o7

The best answer perhaps is to keep an eye
on the h n t of the herd. Its early moves
may indicate p o d opportunities,butwhen the movement.becomes a stampede, keep away.It usually ends at thebottom of a cW. Ignore the herd and stick
to your own carefully planned strategy.
....................................................................
Colin Bloodworth,directorof PPI Indonesia,hasspentover20years in Indonesia.If you havequestionsonthlsora relatedsubject,contact
the writer at Indonesiargppi-advisory.com.

~~~~~PTi~ne~te&butmyguessis
that the oversupplywillhurt the industry.
We seethe same happeningwith airha.
To be asuccessful entrepreneur, youneed vision and an ability to innovate
rather thanfollow.

I