“Behavioural economics isn’t about finding the Holy Grail of investing,” CEOs from the leading European listed real estate companies were told at the first EPRA CEO dedicated Conference since 2014. “It’s about recognising that we often aren’t as skilled as we like to think we are.”
Just under 40 CEOs from the sector gathered in London for an afternoon of networking and interactive workshops aimed at strengthening the ties between the various companies across Europe, many of whom had never met before. Topics ranged from avoiding herding and ‘groupthink’ to thematic investing and experience around technology.
The sessions started with Paul Craven, a behavioural economist whose insights on investing stem from his 27 years at Schroders, PIMCO and Goldman Sachs. “Economic history is littered with examples of bubbles fuelled by humans’ hard-wired herd instinct and confirmation bias,” observed the British consultant, who helps companies and individuals gain a competitive edge by understanding the psychology of human behaviour.
Craven explained to the EPRA audience how primaeval survival instincts dating back to the beginnings of mankind might shape our decision-making. It is intuitive and very powerful -- like an elephant with a rider sitting atop, to use a metaphor from psychologist Jonathan Haidt. The rider, who represents our rational, analytical self in the metaphor, is almost powerless to control or steer the animal when it responds to fear, hunger, anger or other instincts.
Craven’s concluding recommendation for investors is to be highly sceptical when there is a growing consensus in markets of a ‘new paradigm’ or the ‘it’s different this time’ narrative because of the natural biases in human thinking.
The afternoon continued with an interactive discussion around thematic investments hosted by Struan Robertson from BAML. Robertson posited that interest rates were at the lowest level for the longest period in 5,000 years, and there remained USD 18 trillion of negative-yielding debt globally.
Moving on, Robertson, quoted Sam Zell that the biggest competition for WeWork “is a plug socket in Starbucks”, emphasising his whole workshop’s point that disruption does not always occur in a linear fashion and in the way we think it will. The greatest danger in times of turbulence is not the turbulence – it is to act with yesterday’s logic.
The CEOs then broke out into groups to discuss where on the various axis they all saw the next five to ten years, (lower for longer versus cyclical volatility and length of leases versus flexi leases). Needless to say, there were many opinions!
The day rounded off with networking drinks and discussions about how we would all try and steer our rational side in response to natural instincts and an agreement to meet again next year.