Joy Yacoub from our business development team has been meeting more than clients as she visits regional New South Wales.

I thought it would be a good idea to go on a road trip to meet some of Allan Gray’s clients. I’d never been to Canberra (okay I have, but only to Questacon in year six which was actually pretty awesome), or Wagga Wagga and I didn’t know how far away Griffith really was.

As I was driving into the country I couldn’t believe how many cows I saw along the way, but even more overwhelming was the number of sheep.

When I arrived in Griffith, seven and a half hours away from home, a client kindly took me on a quick scenic tour and stopped at a winery (if you are ever in Griffith I highly recommend checking out McWilliams Winery; Durif is my new favourite red). As we were driving back to the office I looked over and saw an enormous number of sheep hanging out in a fenced up area. It blew my mind. This was definitely one of the most exciting parts of the trip, after meeting the clients of course. I got out of the car and walked over and that’s when I experienced some real rejection.

What a bunch of sheep!

At exactly the same time they all just turned and gave me their backsides, which I thought was actually quite rude.  I wasn’t holding a gun, I didn’t even have one of those sheep shearing machines, I was wearing a nice suit and looked quite professional.  “Why do they keep doing that?” I asked. “They just follow each other” the client yelled out in response, “and I guess it makes them feel safer.” Maybe turning around meant they couldn’t see me and in their minds I didn’t exist.

Deep down we are all sheep

You often hear about ‘herd mentality’, which describes how people are influenced by their peers to adopt certain behaviours. The brain is such a powerful survival machine. One of the most successful survival techniques is our desire to find safety in numbers.

Working at Allan Gray I hear and speak about herd mentality all the time. Fund managers have a tendency to stick together, in terms of the investments they make. That’s why many funds have similar holdings. You will often hear me say that not all active managers are actually active, so their funds often replicate the index. Herd mentality is one of the reasons most Australian equity funds look the same.

While there can often be safety in numbers, it is important to remember that sticking together can also lead to bad news for everyone. There is no guarantee that the leader knows where they are going, and the others follow suit. To switch analogies think of lemmings heading over the cliff edge!

 

The good news

The sheep weren’t all the same; I was so happy to see that I had made at least one potential friend. If you look hard enough at the photo, you will see that one sheep was facing me instead.

Herd mentality can be broken. Research shows that conscious choices actually will make physical changes in the brain, breaking established neural pathways and making it easier to form new ones. When it comes to choosing a fund manager, it is important to look for the ones that are willing to be different, unless you want your portfolio to consist of the same stocks.

If all the sheep in the photo were fund managers, make sure you choose the one which is looking directly at you in your portfolio.

 

Joy Yacoub holds a Bachelor of Economics and a Bachelor of Commerce (UNSW), specialising in Economics, Finance and Business law.