Blog: The madness of crowds

Oh, the curious minds of us humans. How ironic that the very fuel shortages we fear these last few week are being caused, not by driver shortages, Brexit, CV19, [insert other world event here], but by our own irrational behaviour.

Stealth like, the pervasive ‘herding bias’ is at play again. Sure, sure, I get there are pressures on our fuel delivery system, with a shortage of HGV drivers at present, but is that the real issue at play here for you?

‘Herding bias’ refers to the curious behaviour we exhibit where the decisions we make are led by those around us e.g., we do what everyone else appears to be doing, well, because everyone else is doing it, even where it appears irrational or unethical.

This behaviour is compounded by the mass media or the ‘Negative Events World Service’ (news) as it’s known. Reports of huge queues at petrol stations and pictures of car boots overflowing with petrol cans, as apparent desperate individuals flock to stock up on as much fuel as they can. Whilst this informs it also creates the impression of a looming disaster - if those people are panicking I guess I should be as well. And off to the petrol station you go, which only serves to compound the problem.

In reality, the fuel delivery system in the UK is incredibly robust. Our first petrol station opened in 1919, expanding to over 8,000 outlets today. The vast majority of our petrol comes from Norway and doesn’t intend to stop anytime soon, therefore there is no shortage of fuel as such. There are in excess of 236,000 HGV drivers in the UK, with over 1 million qualified and potentially ready to step back into the sector. If that wasn’t enough, the army have 150 military tankers stepping in and deliver to fore courts across the land. Add on the temporary visa scheme coming in for additional drivers from abroad. But all that positive stuff doesn’t make front page news does it.

So how can we combat this ‘herding bias’? Take a step back from it all and consider the facts first. Is there useful information in the behaviour of the pack, or will you regret following the herd for all the wrong reasons. Stop and think deeply about your behaviour.

When we take a step back from our subconscious behaviour and think more deeply about the reality we start to land on sensible solutions. E.g. maintain your normal petrol buying routine, ignore the noise around you, acknowledge that the UK fuel system is robust and you’ll be okay. This too shall pass.

We see the madness of crowds all too often in the investing world. Individuals panicking and selling when markets drop ‘because everyone else seems to be’. It’s why we’re here at Spentwell, to keep you pointed in the right direction, to drown out the noise around you, to focus on what’s important (you), and help you avoid the classic investor mistakes that can cost you.

To those sitting on their toilet roll castle with a moat of petrol sloshing around, politely, challenge your thinking.

Get in touch at team@spentwell.co.uk and let’s keep you on the right track with your finances.

Keith Boyes

Managing Director

Chartered Financial Planner

Spentwell.

Guidance only. Investing in the stock market does carry a degree of risk and returns are not guaranteed. Be aware and understand the risks involved before participating. If in doubt, please seek professional advice.