The importance of research in stock investing
There has been an astonishing increase in DIY investing in New Zealand since the Covid lockdown in 2020. The Financial Market Authority (FMA) in New Zealand estimates that more than 120,000 new investors have joined local online investment platforms such as Sharesies, InvestNow, and Hatch. About 70 per cent of their members are under the age of 40 with three-quarters of those users being 25-44 year olds and the average user is 35 years old.
The contributing factors for this explosive growth are - market movement creating lot of interest, people getting bored staying at home and thinking about their financial future, very low interest rate and finally, the adoption of technology making it easier for people to trade in stocks. This trend was already visible for the past few years, but Covid has just accelerated the growth of DIY investing.
Whilst this is good news for New Zealand as people are starting to take control of their finances and engaging more with the Stock Market, there is also a risk that many of these aspiring investors may not be well-informed about how things work in the investing world, particularly stock investing.
Rob Everret, the CEO of FMA, stated in a recent interview with NZ Herald, "We've seen the explosion of chat rooms and social media around investing. The US has had this for quite a while, but it's quite new to New Zealand. It's been quite hard until now to find anyone talking about markets. It does worry us. It plays into that broader issue of 'can you trust what you see on the internet', and frankly should half of what's on there really be on there.”
Some of the key messages that he pointed out for the new investors are:
· Most of what's in the chat rooms and social media sites, particularly in relation to specific stocks, you should ignore. Honestly, it may be well-intentioned, but it's certainly not very well-informed.
· Markets are incredibly complex, and it is very difficult to predict what is going to happen in the future. Even the large brokerage firms and investment banks struggle to time the market. Markets can go up and down, so it is very important that people invest according to their means and understand the risk.
· On the upside, this has also been fun. More and more young people are now starting to take interest in investments.
It was encouraging to hear his views which strengthens our belief that good research is critical to making an investment decision. With the explosion of DIY investor numbers there is a real need for platforms that provide good quality research and education that people can trust.