Your Quarterly E-Zine
Edition 11 • December 2019

This website contains the latest edition of Forsyth Barr Focus, a quarterly on-line magazine written by senior members of Forsyth Barr's investment team.

If you experience any difficulty in accessing Forsyth Barr Focus,
please call 0800 367 227, or e-Mail editor@forsythbarrfocus.co.nz for assistance.

 

The Perils of Octopus Wrestling

In his 2015 book “Fox Tossing, Octopus Wrestling and Other Forgotten Sports”, Edward Brooke-Hitching refers to a group of sports, now forgotten, which dwindled and gradually died owing to “the enormous amount of personal risk involved”.

The appeal of exotic pastimes such as balloon-jumping, waterfall-riding and firework-boxing, lay in their element of danger and voyeuristic spectator appeal.

New Zealand was not immune to this spirit of “derring-do”. In 1899, Aucklander David Mahoney (aka “Captain Lorraine”), proved himself a man of nerve in undertaking a balloon ascent from the Basin Reserve in Wellington, and then (from an estimated height of 2,000 feet), an exciting and graceful descent by means of a parachute into the grounds of Wellington College.

Lorraine died during a similar exploit which started at Lancaster Park on Canterbury Anniversary Day later that year, floating out past the Lyttleton Heads never to be seen again, with the sanguine press noting that he was “butchered to make a Christchurch holiday”. Despite extensive preparation and the confidence which came from experience, Captain Lorraine was unable to save himself.

The level of personal risk that investors are prepared to take when considering their financial goals can be strongly influenced by the prospect of attaining a superior return, often based on past experience. One study1 suggests that investors generally exhibit a significant over-confidence bias when predicting sharemarket returns. Behavioural finance also suggests that investors will tend to share their investment success with others, which can amplify the merits of a perceived opportunity and muffle the accompanying risk.

The recent movie Tulip Fever portrayed the enthusiasm with which investors in 17th century Amsterdam attached intangible value to an ornamental plant. In one memorable scene from the film (apparently based on a factual event), the character entrusted with transporting an invaluable tulip bulb to its new owner, confessed to having eaten it in an inebriated state; after all, it resembled (and apparently tasted just like) an onion. One man’s prized possession can be another man’s sandwich filling. The value we attach to things is sometimes in the eye of the beholder only. When it comes to investing, third-party objective investment advice serves to hold a mirror to our personal perceptions of investment risk and return. While it’s not possible to have one without the other, advice based on research and consideration of a person’s financial circumstances will create the necessary balance between the potential reward and the associated risk of loss.

Charles Ferris was perhaps the most famous of New Zealand’s early sporting daredevils. One summer’s day in 1927 at Wainui Beach in Gisborne, he intimated his intention of capturing a great white shark, locally known as “Kruger".

Cutting up a stingray, Mr Ferris waded into the sea armed with a harpoon. Spectators said it was the most thrilling thing they had ever seen when Mr. Ferris drove his harpoon hard into the shark which, when pulled ashore, was found to measure 10 feet and to weigh 400 pounds. “Such sport, however, is not to be recommended for all”, it was wisely observed at the time.

When armed only with personal experience, the risks to an investor can be considerable, when circumstances create an unforeseen (or in some cases, unforeseeable) investment outcome. The thrill of investment success is not without its dangers. The benefit of professional advice is that those dangers will seldom expose investors to risks they are unable to bear.

By Gordon Noble-Campbell
Director,  Private Client Services

1Erasmus School of Economics, Erasmus University Rotterdam, The Netherlands, 2011

For a printable PDF of this article click here