Herding

A cautionary tale about trying to keep up with the Joneses

Written by Alison Plaxin
June 8, 2017

Keeping up with the Joneses refers to the comparison with one’s neighbour as a benchmark for social class or the accumulation of material goods. To fail to keep up with the Joneses is widely perceived as demonstrating socio-economic or cultural inferiority.

Guess what? The behavioural bias in the investment industry known as herding – the need to own the investment flavour of the day, win or lose, because by not doing so you risk the pain of social exclusion – is a version of the same pathology.

I run into the keeping up with the joneses syndrome quite frequently in my line of work. But rather than condemn it out of hand as a foolhardy aberration, I want to give the idea some context by briefly examining the origins and original meaning of the expression.

It started as a comic strip

The phrase reportedly was born – and enjoyed widespread and enduring recognition – through a comic strip Keeping Up with the Joneses, created by Arthur R. “Pop” Momand in 1913. The strip ran until 1940 in The New York World and various other newspapers. The strip depicts the social climbing McGinis family, who struggle to ‘keep up’ with their neighbours, the Joneses of the title.

Keeping up with the Kardashians

Now we have the Kardashians, a contemporary version of the Joneses, to contend with. Consumer marketers get rich by telling us we’re not good enough unless and until we acquire the products and services that enable us to keep up with the likes of the Kardashians. Of course, by the time we get there, the Kardashians are ahead of us again (like how your brand-new computer is out of date as soon as you walk out of the store) and the vacuous and debilitating cycle of keeping up with the Kardashians perpetuates itself once more.

Conspicuous consumption

Social status once depended on your family name; however with the increasing availability of products and services, people became more inclined to define themselves by what they possessed and the subtle quest for higher status accelerated. Conspicuous consumption and materialism have been an insatiable juggernaut ever since and living beyond one’s means is, increasingly, the new normal.

The pressure to conform

Conforming to group or societal norms is part of being human. But in the world of investing there is a danger in conformity because herding in financial markets can drive the values of certain securities to extreme levels, causing bubbles that invariably pop.

While the crowd is often right in momentum-driven markets, there are countless examples of the herd being wrong-footed. The widespread dash into technology stocks in the late 1990s was a classic case of herding. Investors made a collective cognitive error in their overly optimistic assessment of prospects for dotcoms, many of which had achieved little.

Human psychology is rarely easy. And none of us is perfect. Triviality plays tricks on the best of us. Stopping to think is, often, the antithesis of having a good time. In investing, yielding irrationally to a popular enthusiasm is, almost always, followed by regret. Trying to keep up with the Kardashians of this world, whether in making a consumer purchase or an investment decision, is an exercise in futility and fatuity. Avoid it.

Geoff Funke, Senior Wealth Advisor, Scotia Wealth Management, 604-535-4721.