COLLEGE TABLE REVIEW R EVIEW
Jesse Moors on ‘Financial markets and the Growth of the Mob Mentality”
Jesse Moors holds a Bachelor of Arts from The University of Melbourne and a Master of International Business from the Melbourne Business School. At our May College Table he met Members to discuss ‘Financial markets and the growth of the mob mentality’ over lunch.
and realising gains to their investors. Their belief is that many listed companies are susceptible to being momentarily oversold or undervalued due to herd mentality and market psychology.
Three years ago, he and his business partner Nick Quinn established their own business, Spatium Capital, a funds management firm, having worked on the strategy for this business after hours in the seven years prior while working full time for larger companies – Jesse in an international development and business strategy role, and Nick in international transfer pricing. With the backing of a seed investor, the Spatium Small Companies Fund, an open-ended unit trust, was launched.
Defining herd (or mob) mentality as the tendency for investors to follow and copy what other investors are doing, based largely on emotions, instinct and the advice of ‘friends’, Jesse noted an increase in these types of investment decisions that are neither rational nor based on objective independent analyses. This phenomenon has been studied by behavioural scientists since the later part of the 20th century and is a crucial component in the psychological influence and bias assessments by Jesse and Nick when identifying relevant stocks to buy and sell.
Jesse explained that the Spatium Small Companies Fund investment focus is on the top 300 Australian Securities Exchange (ASX) listed companies, with a heavy bias to the 101-300 ‘small caps’ companies. These ‘small cap’ companies often have a market capitalisation of between $450 million and $4.5 billion. In and of itself, this segment of the top 300 ASX listed companies tends to be less scrutinised and monitored by large research teams, therefore creating greater opportunity for price dislocations to arise.
Moving to the explanation of why there has been this increase in mob or herd mentality, Jesse spoke firstly to ETFs – exchange-traded funds. ETFs are managed funds that can be treated like shares in that they can be bought and sold on an exchange (e.g., the ASX). Most are ‘passive’ investments – that is, the fund manager tracks the value of an index such as Standard & Poor’s 500 index (S&P500) or a commodity (e.g., gold), and thereby seeks to return the same value as if you were to be invested in the index itself.
Another point of differentiation for the Spatium Small Companies Fund is the short term of holding bought stocks. Spatium Capital seeks to pick stocks according to key principles and holds them on average for 30 to 45 days before selling
Available since the late 1980’s, there are now over 7,500 ETFs globally. They are a main type of investment fund (5% of the total world investment funds) and are rebalanced at different time intervals (e.g., some are rebalanced monthly, quarterly or even annually).
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