Allaying investor concerns in difficult times

Growth Investments General Manager David Curmi speaks to David Lindsay about today’s investor sentiment and the steps Growth is taking to keep investors better informed about their investments

In light of today’s difficult equity investment climate, Growth Investments - a wholly-owned subsidiary of Middlesea Valletta Life Insurance and Maltese representatives for world-leading Fidelity Investments - recently embarked on an ambitious ‘Speaking from Experience’ educational campaign. Interestingly, the campaign is not aimed at investors, but instead at those who provide investors with advice.
The campaign, which has been running for some two weeks now, is not about the management of investments, but the management of investors – and their emotions and attitudes toward what are perceived as declining markets and investing in uncertain times.
The programme was developed in response to continuing difficult market conditions and increasingly negative investor and advisor sentiment. For advisors, the programme aims at a deeper understanding of investor behaviour by examining typical client scenarios that advisors are likely to encounter in volatile markets. The programme’s materials draw upon the work of investor psychologists to demonstrate how advisors can use their understanding of investor psychology to effectively address clients’ concerns.
The programme covers topics such as ‘Understanding investor behaviour in uncertain markets’; ‘Understanding risk and reassessing expectations’; ‘The benefits of diversification’; ‘The benefits of staying invested’; ‘Seeing the opportunity in volatility’; ‘The value of active management’; and ‘Putting market declines into perspective’.
"Fidelity has dug deep into the way the human brain works when it is under such conditions and has come up with this campaign aimed at helping investment consultants when they are faced with uncertain investors," explains Growth Investments General Manager David Curmi.
"Today’s market conditions were the driving force behind our decision to launch this campaign. In Malta we have experienced a substantial reduction of unit linked [insurance products linked to an investment fund] business."
Although Growth Investments is the sole representative for Fidelity Investments in Malta and retails their funds to private investors, Growth also acts as a back office services company for Middlesea Valletta Life with respect to its unit-linked products, which are in turn linked to Fidelity Investment funds. As such, the potential investor has two choices involving Fidelity: either they go to Growth to invest in Fidelity’s stand alone investment products, or they go to MSV and invest through its unit linked insurance and retirement funds, and effectively have that policy linked to Fidelity.
Curmi continues, "This decline in unit linked business is not particular to Malta. In fact, the same trend has been noted in both France and Italy and it has become obvious that something had to be done to address the situation.
"Many people have become less and less inclined to invest in these types of products following the downturn in equities on various stock exchanges around the world, which has shied people away from these types of investments."
Indeed, the wary investor has had a lot to be concerned about of late, with the bursting of the technology bubble, followed by the events of 11 September, further declines in technology stocks and then the Enron and Worldcom scandals.
Curmi believes the latter accounting debacles damaged the investment psyche to a greater extent than the 11 September incidents had.
He explains, "The Enron and Worldcom scandals revealed a deeper problem than that of 11 September, which, for all intents and purposes, can be considered a one off.
"However, the incidents of Worldcom and Enron have brought to light a new phenomenon of doubting the integrity of the people who were managing listed companies and, consequently, the way in which these companies are managed. As soon as an investor hears of a possible question mark on a company’s integrity, the consequences are enormous.
"We suffered from these occurrences and, like everyone else, people came to us to redeem their policies. But the fact remains that selling investments when they are at a low is not the right thing to do. It is difficult to try and persuade someone to hold on to their investment while they watch it depreciate.
"I think the problem with Maltese investors is that they tend to look to the very short term. They invest, they enjoy watching their investment going up, but they panic when they see it going down. This is coupled by the fact that the main determinants in investors’ decisions are their instinct, word of mouth among friends and what they hear in the media.
"However, what Fidelity has been saying is that in current times the best investors are actually doing nothing at all. They are holding out, standing up to the pressures to sell and are disciplined."
Curmi is adamant that the infamous stock market downturns of late must be seen in a historical perspective in order to realise the full extent of their decisions.
"We very much believe that the best way to regain investor confidence is by showing investors the facts and figures to back up what we are saying, which is exactly what we are doing though this campaign.
"So far we have had a very positive response to the campaign. Although I think the Maltese investor is still motivated too much by instinct, I believe we can help to alter this state of affairs by means of the material we are distributing, which places matters in a historical perspective."
The message being, correctly, conveyed is that over the course of last century, each major global crisis was coupled by a large jump in share prices. And as such, it is recommended that investors hold their ground despite the way things may look at certain times.
Fidelity’s figures, being supplied to investment advisors by Growth as an integral part of its educational campaign, show that 79 per cent of investors holding on to their investments for just one year made money, 86 per cent of those holding out for three years saw profits, 97 per cent after five years, while 100 per cent of those holding on for 10 years saw profits. The figures also show that, over the long term, equities have out performed bonds and cash many times over.
The clear message is that equity investors should stay invested until they are ready to cash their investment in for good.
"Fidelity is constantly providing advice and we, as their representatives in Malta, have been doing this as well. We have also been trying to create an equity culture in Malta, which is very much needed – and this means that we need to start educating people, possibly from a young age, what it means to invest in equities and the stock market.
"This is a time when people need to go back to their advisors. Just because someone had a bad experience, it doesn’t mean the best course of action is to begin acting on his own behalf. I ask Mr Curmi what he believes is the best way to spread an investment around, to avoid ‘keeping all your eggs in one basket.’
"There is no single answer to how to best spread your investment," he explains, "it depends on what your objective is. Are you investing money so you can buy property, a boat or a car in six month’s time, or are you investing so that in 20 year’s time you can cash in that investment?
"People who want to see short term results should not even consider going into equities or funds. We are advocating equities as a long term investment. And despite the downturns and declining markets we have seen lately, we still believe there are a lot of opportunities to be capitalised upon."