Behavioral finance has become a popular topic among financial advisors over the past decade or so. It is essentially the psychology behind investing decisions. Emotions play a big role in what we are comfortable and uncomfortable with as far as what we invest in. Most people wont invest in companies that they don’t like or are morally opposed to. A whole movement of “Socially Responsible Investing” has emerged from a subset of investors that want to invest in things that are beneficial to society as well as their wallet.
Typically, people oppose the “sin stocks” – alcohol, tobacco, firearms, etc.. There was a time when doctors, who take the Hippocratic oath, would never invest in these types of companies. In my experience, people have a tendency to drop their moral compass once the returns aren’t up to par. That’s just based on what I’ve seen.
One of the first lessons of behavioral finance is that people are often resistant to change. They like to hate the same companies and follow the rest of the herd. I think a bit of a shift has begun in the retail world, in this regard.
People are especially loyal to the places that they shop. There are Target (TGT:NYSE) people, Walmart (WMT:NYSE) people, Kohl’s (KSS:NYSE) people, etc.. It seems like just about everyone, to some degree, is now an Amazon (AMZN:NASDAQ) person.
For as long as I can remember, Wal-Mart was one of the most hated companies out there because they would come into a town, put all the mom-and-pop stores out of business by undercutting them on price and have zero personal touch. People resisted shopping at Wal-Mart until they had no choice. Before too long, the store owners that went under due to Wal-Mart were working in the stores. They were ruthless in getting what they wanted.
Then came Amazon.com. They were able to compete with Wal-Mart price-wise by operating on razor thin margins and investing huge sums of money with no near term return to be seen. I read a book about Amazon not too long ago, called The Everything Store. If you want to learn about ruthlessness in business, read that book. I was surprised. Amazon has often been able to offer lower prices than Walmart and the other big box chain stores and were also notoriously customer friendly when it came to returns and things of that sort. People loved Amazon and I think most don’t realize how many companies and people were negatively impacted by the company’s growth.
I’m sensing a bit of a shift in sentiment lately. The idea of a drone delivering a package to your door from Amazon versus a Wal-Mart employee delivering on their way into or home from work has been a subject of many articles recently. It is an attempt to compete with the free shipping, sometimes same day, that Amazon offers. I think its more than that, though. I think it’s the human touch that Wal-Mart is banking on.
I think it’s worth noting that Amazon has been revealing more and more about their “bricks and mortar” strategy. They have some physical locations around the country and are expected to add more. (See: Related article). For so long, so many people hated Wal-Mart. Maybe that’s changing.
DISCLOSURE: This article was written for informational purposes only. It is not intended as investment advice and should not be relied upon as such. Consult with a qualified financial advisor or tax professional to determine the proper investment plan for you and your circumstances. I do not personally own or plan to purchase any investments spoken of here.