Last week (on 9th Aug) IKEA opened the first store in India in the southern city of Hyderabad and it was an instant rage.
IKEA mania led to stampede and more than 40,000 people visited the store on first day! They did a sales of Rs 2.4 Crore ($350K) including Rs 11,00,000 from food sold in cafeteria (i.e. Rs 40 Cr or $5 million on annualized basis – just from cafeteria)
There were many messages and photos circulating on social media about this mad rush. Here are few:
I wondered why do people go crazy about such things – be it Ikea or new Apple iPhone launch and so on.
I had attended a course on Behaviroal Finance and have read many books on such topics/themes. So I am fascinated by “herd mentality”, be it in shopping, or politics or investing.
Interestingly, I received a forward on WhatsApp on our investing group which is about Ikea phenomenon and the herd mentality in investing. I tried searching online for this article written by some fellow named Shankar but couldn’t find it. Hence not able to share the link to original post. If you happen to find it do let me know so that I can update the source.
Do read this thought provoking article…
Ikea and Herding
By Shankar on Aug 10, 2018 02:07 pm
“We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.”
Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one – Charles Mackay
Ikea Store Crowd
Charles Mackay knew a thing or two about herd behaviour (In investing it is everyone jumping from one investment to another ) having researched and written the book, “Extraordinary Popular Delusions and the Madness of Crowds” in 1841 ( Yes, in 1841!) . The book shows the manic schemes of those days such as Tulipmania, South sea bubble etc. But why am i discussing that along with the opening of the Ikea store in Hyderabad?
We are wired for herding as humans are social by nature living in large societies.
We are wired to what our neighbour’s are doing, if it was bell bottom pants for previous generation it is buying torn jeans today. it is biological not logical.
We herd into investments too, it was real estate 4-5 years back, bitcoin last year and midcap funds this year
For a bubble to break there is no need for anything, like the proverbial last straw on a camels back, bubbles collapse on its own weight
So as an investor how to prepare our minds for long term ?
Investments are a vehicle to reach your goals and are not a game to maximise returns quickly. Would you hop in and hop off twenty different vehicles to reach your destination or take a direct flight ?
Investments are for your children’s education, your retirement, your wish for the good things of life like travel. It is for important goals so that we don’t have to depend on charity of others im old age and to educate our children in a better way. If we think about money this way, neither would we stand in queues infront of a store to buy something that we were perfectly fine without till the day before.
We are wired for short term flight or fight response which makes long term thinking difficult. Which is why so little people meet success in investing. We herd into investments at the wrong time and exit at the wrong time too.
Media plays a large part in it as bad news sells more than good news. You will never see a headline that says this investor made a fortune by being in it for the long term and not herding.
Successful investing is simple but not easy as it requires us to not move in and out of investments on short term performance.
Successful investing is more like farming if it takes 1o years for a mango tree to grow it will take 10 years, you can’t plant a tree today and expect fruits in 3 months. But once it is grown then it will give fruits for decades.
One easy way to beat short term outlook is not to look at our investments regularly,
Another way to avoid herding is to invest regularly so that you build wealth and you are not too bothered about short term fluctuations. This takes the trouble out of investing but remember this is for goals at least a decade away and not a money making machine where SIP’s go into one end and high returns comes out 2-3 or even 5 years later.
Hope you are part of the small set of people who invest for the long haul and avoid herds.