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The Sunday Times 06 August 2017


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“Domestiphobia” could variously be described as the exaggerated, inexplicable and/or irrational fear of chores relating to the household or family.

Example: His fear of driving too close to junction 4 on the M50 given its proximity to the turn off for IKEA could be described as a mild case of domestiphobia.

Synonyms: Male; Antonyms: Guilty Male.

I personally find the pre-purchase routine of a trip to IKEA to be tortuous but once at home I’m quite the alan-key fan and rarely shirk my flat pack responsibilities.

IKEA discovered something very important years ago; the very act of putting effort into the creation of something adds to our perceived value of that something. People have this strong, internalised notion that effort equates to quality. It even has a name - the IKEA effect – as labelled by behavioural economist Dan Ariely. In four studies in which consumers assembled IKEA boxes, folded origami, and built sets of Lego, Ariely demonstrated a clear increase in valuation of self-made products.

Probably the best example of this was from the famous Betty Crocker brand of instant cake mix in America. Some years ago it was experiencing sluggish sales and realised its customers were feeling a bit guilty as all they had to do was simply add water to the recipe. It decided to make the process of cake making a ‘bit more complicated’. It changed its recipe such that it required the addition of an egg as well. And customers loved it. The slightly ‘complicated’ process made them feel that they were actually contributing something to the end product.

I’m sure this has some equivalence to the dating process of playing hard to get, in which increased efforts of the pursuer enhance the perceived ‘value’ of the pursuee. But I’m on dangerous ground here.

This is interesting on a number of fronts. Firstly, economic orthodoxy dictates that we should place more value on items that spare us work. As we increasingly identify ourselves as money-rich and time-poor, we should be prepared to spend more of the former to save the latter. This is but one of many aspects of economic orthodoxy that jars with the reality.

Secondly, I think the IKEA effect has particular relevance to the investment world, but it’s a bit of double edged sword.

I’ve long argued with financial advisers that I work with that getting a client to buy into the process is important in terms of engendering commitment. After all, casual commitments to a process invite equally casual reversals when the going gets tough, so it is important to commit properly to a plan.

I think this works well for those aspects of the investment process over which we can exercise genuine control – the planning piece. But what about those aspects of investing where we don’t have control?

Here, there is no guarantee that more effort equals higher returns. It’s likely the relationship is reversed – more effort will reduce value. The dangers are most acute for those seeking to go the investment route alone.

Seemingly more so now than ever, the DIY attitude has become widespread across industries. People are taking on projects themselves that historically have been handled by professionals. Whether it’s planning a holiday, building a tree house, or self-diagnosing a rash, there’s a YouTube video or online forum for everything.

Now imagine what the impact might be if you manage your own investments. A wonky bookcase is one thing, but an unstable portfolio is quite a bit more serious.

The trouble here relates to the timescale of feedback. If you build a flat pack book case and it rocks from side to side, you have instant feedback that your process was faulty. Equally so for the cake that fails to rise or the rash that continues to spread.

Now think of how frequent the feedback on your investment portfolio is? You may think it’s very frequent – after all stock market based investments are marked to market on a daily basis. But this feedback may not be relevant as the stock market follows what Howard Marks refers to as a pendulum-like swing between overpriced and underpriced, reflecting periods of euphoria and depression. The relevant feedback on a stock portfolio is arguably extremely infrequent as the pendulum spends most of the time moving away from each end. You won’t know whether your investment portfolio is ‘working’ or not for a period of years.  Just think of how many mistakes you can make in this time period before recognising it.

Not all phobias are bad – a fear of making solo investment decisions is quite rational. For the vast majority of us, the simplest and best solution is to seek external advice in relation to investing.

Warning: Past performance is not a reliable guide to future performance.

Gary Connolly is Managing Director of iCubed, promoting better investment outcomes through a collaborative approach to investing. He can be contacted at gary@icubed.ie or on twitter @gconno1.

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