The introduction of low-cost online trading platforms brought a new generation of investors to the sharemarket. The customer-friendly approach attracted those with little knowledge of financial markets and who lacked the resources to buy property.
Aided by clever publicity and word of mouth recommendations, platforms such as Sharesies and Hatch replaced the share clubs that emerged during any boom.
Sharesies found an instant audience. Some 6000 signed up as initial users before it was officially launched in 2017. Today it has more than 500,000 who have invested some $2 billion. They are mostly under 40.
Hatch, which specialises in the American market, boasts a fund of half that size and is a subsidiary of platform provider FNZ. There is talk of it being merged with Jarden Direct.
A positive outcome has been a generational change of attitude toward share investing, which fell victim to a speculative mania in the late 1980s and, for many, remained off limits since. The market was left in the hands of middle-aged white men living in Auckland.
A survey by the Financial Markets Authority (FMA) in 2016 found 56% of those surveyed had confidence in the markets. Two-thirds of them had KiwiSaver and only 21% owned shares directly. An even lower proportion, 11%, had invested in managed funds. Those with least confidence in the market were 18 to 29-year-old females on low incomes.
Five years later, FMA research showed confidence in markets had risen to 72% and six out of 10 who owned shares had used a platform such as Sharesies. Those who used an online platform were most likely to be aged 25-29.
Good timing
As NBR contributor and financial adviser Brent Sheather put it at the time:
“It appears that low-cost platforms are very much the right product at the right time – with the huge increase in house prices, many young people acknowledge they have no chance of buying a house in the cities where they live so they instead have resolved to have some fun with their money in a raging bull market for everything.”
Sheather raised concerns about how online platforms operated in the US to the detriment of retail investors, but was assured by the FMA that this couldn’t happen here, though Sharesies and Hatch both used the same discount broker.
In a subsequent column, Sheather questioned whether the confidence boost in markets was due to the convenience of online platforms or to the belief that shares, like house prices, only went in one direction. The ease and low cost of trading may have only made it cheaper to lose money, he warned.
Sheather quoted from a 2020 paper on high-frequency traders using low-cost commission, saying they were “noise traders” rather than informed investors. Another study showed such investors were “subject to a litany of behavioural biases, including overconfidence, herding, a limited attention span, and trend-chasing, which predictably results in very poor performance.”
The effect of these traders on the world’s largest stock market are closely followed by its regulator to ensure its price discovery and liquidity are not compromised.
Sharesies Guide co-authors Leighton Roberts, Sonya Williams, and Brooke Roberts.
The perils in short-term trading are not the focus of The Sharesies Guide to Investing, which is written by three of Sharesies’ founders – Brooke Roberts, Leighton Roberts, and Sonya Williams. It is sensible, comprehensive, and easy to read. It should be bought by all parents interested in securing their children’s future prosperity.
The focus on capital markets and economic growth rather than residential property as the path to securing a comfortable future is a healthy balance to much of the recent advice on financial planning.
Threat to wealth
The rest of us may rest assured the Sharesies generation will not easily be seduced by alternative ways to organise a wealth-producing society. Yet that threat has never been greater in the post-pandemic world. NBR has previously reported Sharesies is having to reduce staff to stem losses from the market slump.
By its nature, the Sharesies book is backward-looking and is not a guide to sophisticated analysis of global trends. Perhaps mainly for marketing purposes, it also has the Millennials’ touchy-feely approach to business. Sharesies is a Certified B Corp, which means it wants to reduce inequality, lower poverty levels, create a healthier environment, and build stronger communities.
With respect, these should not be the primary intention of investors seeking a return on what they can afford out of their taxed earnings. The historical record provides ample evidence of countries and policies that produce prosperity, reduce poverty, and make the world a better place. Examples of those headed in the wrong direction are also numerous. Mostly, the difference relates to good management rather than good intentions.
Governments that enacted lockdowns during the Covid-19 pandemic and vastly increased their debt acted with the best intentions. So did central banks by opening the floodgates of cheap money to keep economies afloat.
In hindsight, that price is high in financial losses, increased mental and other health ailments, poor education outcomes, and much else. In financial terms alone, the estimate of global sharemarket losses last year from higher interest rates to curb inflation is in the trillions of dollars; US$18 trillion was quoted this week in NBR’s Morning Brew. US government bonds had their worst-ever year.
That column also noted a Bloomberg report that governments and companies were shifting back to investment in fossil fuels, which had been a no-no for many managed funds. As a result, they missed the largest surge in any sharemarket sector.
Ideological step
On another front, Labour-style governments are girding themselves for another ideological step forward into market interventions. These are often voter-friendly, if not economically wise.
But that is par in the course of history, as American political scientist Garett Jones discovered a few years ago. His book, 10% Less Democracy, details countless examples of how political decisions made by governments in an election year are always worse than those made earlier in their term.
The Labour government under Chris Hipkins has attempted to refute that lesson from history by dumping policies that were considered unpopular. It also decided to increase minimum pay rates to the highest in equivalent OECD economies.
Australian Federal Treasurer Jim Chalmers wants to ‘redesign’ capitalism.
This is evidence of a not-so-secret agenda that has considerable intellectual support among the enemies of neoliberalism. Australian Federal Treasurer Jim Chalmers has outlined one path in Capitalism After the Crises.
It is echoed in work by Labour-aligned academics in the UK, where a change of government is overdue. One of them, Craig Renney, has joined the Council of Trade Unions as its economist.
A core policy from the UK, conceived in 2017, is ‘universal basic services’ (UBS) that would apply to a comprehensive range of needs: healthcare, education, legal services, shelter, food, transport, and information. These would all be provided by the state in place of a ‘universal basic income’ for individuals.
A strong advocate is Max Harris, a New Zealander at the University of Oxford. He was recently in the news over there for his involvement in a campaign to ‘cancel’ publication of a book commissioned by Bloomsbury from historian Nigel Biggar on colonisation. The book was subsequently published by William Collins, an imprint of Murdoch-owned HarperCollins, as Colonialism: A Moral Reckoning. Thanks to the controversy, it has become a bestseller.
In a recent article, Harris stated that dental care would be a starter for a UBS and an obvious vote winner. Meanwhile, Chalmers has provided Australians with an economic model influenced by economist Mariana Mazzucato, who is also liberally quoted in the CTU’s Building a Better Future.
Value-based capitalism
Mazzucato champions the public sector as the innovation market maker that allows governments to raise incomes, solve skills shortages, sort out the transition to clean energy, and supply any number of universal services.
Chalmers proposes “reimagining and redesigning markets” into a value-based capitalism. This requires changing the role of the Reserve Bank and the Productivity Commission, two institutions that have already been reformed in New Zealand but to little effect.
He suggests a two-pronged strategy, with the state leading a co-investment model in sectors such as industry, housing, and electricity. The other is “impact investing” in the “social purpose economy, in areas like aged care, education, and disability”, where effective private organisations can offer “decent returns and demonstrate a social dividend”.
The CTU paper goes down the same track, sidelining private investors in favour of a national investment bank that would also be the only KiwiSaver default fund. A Ministry of Green Works (suggested by Harris) would be responsible all housing, transport, energy, and infrastructure needs such as Three Waters and the zero-emissions goal.
What’s left of the private sector would also be subject to a Decent Work Act, which would fix wages, quotas and entitlements in all forms of employment, as well as implement a four-day week. It’s an election manifesto hiding in broad daylight.
The Sharesies Guide to Investing, by Brooke and Leighton Roberts and Sonya Williams (Allen & Unwin).
Other reading:
Capitalism After the Crises, by Jim Chalmers.
Building a Better Future, by Craig Renney and Jacquelin Paul (Council of Trade Unions).
Nevil Gibson is a former editor at large for NBR. He has contributed film and book reviews to various publications.
This is supplied content and not paid for by NBR.
