The Stock Market Paradox: Unveiling the Aversion to Investing in Great Businesses

from Plympton Magazine August 2023

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With the unknown territory of investing, it can seem rather daunting to get into. But with many of us still not investing, are we really making the most of our money? Mike LeGassick, Behavioural Investment Coach and Author is here to help to banish the fear and give you the confidence to start your journey.

Novice investors often perceive the stock market as volatile and risky, but this perception changes when one understands its true nature. The businesses that surround us shape our daily lives, from banks and insurance companies handling our financial matters to utility providers and technology companies revolutionising our connections and interactions. Despite our reliance on these corporations, many individuals display an astonishing aversion to investing in the very stock market that fuels the growth of these great businesses. The question arises: Why is this the case?

Perhaps these individuals have not taken the time to contemplate the true nature of the stock market, leading to their aversion. The power of words cannot be overstated. Consider a hypothetical conversation about investments. If I asked about your investment strategy, you might describe owning a diverse collection of shares in 500 of the largest, most reputable, financially stable, profitable, and innovative companies on the planet—companies we engage with daily without a second thought. This strategy would likely be appealing, sensible, and reassuring. However, if you simply responded with “I invest in the stock market,” the immediate reaction might be that it seems excessively risky, especially for someone who isn’t particularly young. In reality, both responses are virtually identical, as owning fractions of the 500 largest and most stable constituents through an index fund mirrors investing in the entire stock market.

The Money Trail:

“Arithmetic is the first of the sciences and the mother of safety.” – Louis D. Brandeis, American lawyer.

Let’s embark on a thought experiment. Glance at your recent bank statement and reflect on where the lion’s share of your hard-earned money goes. It likely flows toward banks, insurance, shopping, utility companies, fuel, technology, and food providers. Most of your remaining expenses are likely allocated to discretionary activities such as purchasing from online retailers like Amazon, subscribing to streaming services like Netflix, enjoying television services like Sky TV, and indulging in holiday experiences. In this financial exchange, the companies benefit the most. They thrive because of our continuous reliance on their products and services. Yet, despite this reality, many hesitate to invest in these very same companies that billions of consumers effortlessly use in their everyday lives.

The fundamental principles of investing arithmetic are straightforward, yet many investors struggle to acknowledge what is glaringly evident. It is even more prevalent that they intentionally overlook reality because it contradicts their ingrained beliefs, biases, excessive self-assurance, and unquestioning adherence to the conventional functioning of financial markets.

Let’s walk through a day in the life of a typical UK consumer and see how it translates to investing. Picture yourself or your neighbour in this narrative. Your day begins with the alarm on your Apple or Samsung smartphone. You check for calls and messages, scroll through your Facebook, and Twitter accounts, and perhaps watch a mildly amusing cat video on YouTube. These activities are not unique to you, as over 2.2 billion iPhones and 1 billion Samsung smartphones have been sold globally.

Your telecom provider might be Vodafone, a giant in the industry servicing millions of customers monthly. Adjusting the thermostat in your bedroom, you likely use a Honeywell (HON) thermostat, tapping into British Gas.

As part of your routine, you lace up your Nike trainers for a morning run. Nike sells an impressive 25 pairs of shoes every second. You might jog alongside your neighbour, who works for IBM, a multinational company employing hundreds of thousands globally. After your run, you prepare for the day using a Gillette razor, Dove soap, and Head and Shoulders shampoo. Brushing your teeth with Colgate, you join billions of consumers purchasing Unilever and Colgate-

Palmolive products daily.

Switching on Sky News, you catch up on world events while being bombarded with advertisements from various household name brands. A commercial featuring a well-known sports personality discusses the benefits of Humira (AbbVie), a drug used globally to combat arthritis. Brewing your Nescafé coffee and having a bowl of Kellogg’s Cornflakes, you continue your day. On your way to work, you stop for petrol at your local BP station, a multinational oil and gas company headquartered in the UK. You encounter a JCB digger being unloaded from a lorry, reminding you of JCB’s world-renowned reputation as a construction equipment manufacturer.

Before entering work, you grab your latte from one of the 33,833 Starbucks stores. At work, you use a computer running on a Microsoft Windows operating system, likely with an Intel processor. Your company’s networking system might be manufactured by Cisco, a global leader in internet networking. An email arrives from your insurance agent at Aviva, operating in 16 countries and serving over 33 million customers. They inform you about a Bupa healthcare policy, a leading private healthcare provider in the UK. During lunchtime, you grab a meal from McDonald’s, joining millions of others who purchase meals there daily. You might enjoy a Coca-Cola, with 1.9 billion servings consumed worldwide. Post-lunch, you withdraw cash from an HSBC ATM, one of the world’s largest banking and financial services organisations.

A visit to Boots to pick up essentials leads you to purchase Scotchgard Spot Remover, Post-It Notes, and Scotch Tape, all produced by 3M. You also grab some Band-Aids, a Johnson & Johnson product. At Boots, you fill a prescription for a cholesterol medication like Lipitor, made by Pfizer—one of the largest pharmaceutical companies in the world, employing over 90,000 people globally. Instead of paying cash, you decide to use your Visa or Mastercard credit card. Visa is a widely used credit card network globally, while Mastercard has over 290 million cards issued. These cards are used by consumers every day, paying for goods and services, and supporting businesses worldwide.

On your drive home, you remember the patio project you started two weeks ago. You stop by B&Q, the biggest home improvement retailer in the UK, owned by Kingfisher plc, an international home improvements company with over 1,900 stores.

Excitement builds as your sister and her husband plan to fly in on a British Airways flight over the weekend.

British Airways is one of the UK’s largest airlines, connecting people across the globe.

Before heading home, you make a final stop at Tesco. This multinational grocery and general merchandise retailer are one of the largest in the UK, with millions of customers visiting its stores every day.

After loading up your car, you grab a pizza for family night. The plan is to watch a film on Netflix or Amazon Prime, two of the most popular streaming services used by millions worldwide. While watching, something catches your eye, and you pause the movie to order it from your smartphone on Amazon.

As you unwind from the day, remember that the companies you interact with daily, from Apple to B&Q, are not just businesses you buy from but also potential investments. How many of these great companies did you and everyone else use today? Most people easily engage with 20 to 30 of them through both necessity and choice. Now, multiply that by the billions of consumers on Earth. Despite this, many people still perceive the stock market as very risky. I beg to differ.

The companies we’ve discussed represent the strength of the global economy and continue to operate regardless of market fluctuations. They strive to innovate and increase their profits year after year. So, as the global economy faces tough times, have faith in these corporations. Holding a share in these formidable businesses signifies part-ownership and is not akin to gambling with a lottery ticket. It is a logical step to invest in the companies we utilise daily, even during challenging times, as long as our foundational analysis of these businesses remains steady.

In conclusion, the stock market paradox lies in the aversion many individuals have toward investing in the very companies that shape our lives. By understanding the true nature of the stock market and recognising the essential role these businesses play in our daily existence, we can overcome this aversion and embrace the opportunity to invest in the growth and success of these great companies.

Looking for plain English investment advice? Contact me, and I’ll provide you with straightforward guidance to help you navigate the world of investments. Say goodbye to confusing jargon and hello to clear, actionable recommendations tailored to your needs. Take charge of your financial future today and make informed investment decisions with confidence. Get in touch with me now to start your journey towards financial enlightenment and success! w: