Retail investors and covid-19 – don’t panic until we tell you to!

OSC study explores retail investor responses to the COVID-19 pandemic, announces a recent news release.

Here are some extracts:

  • Investors have been confronted with unprecedented uncertainty during the COVID-19 pandemic. Understanding how the pandemic is affecting retail investor experiences and behaviours is key to protecting investors.
  • The Ontario Securities Commission (OSC) today released a new study finding that nearly half of investors are experiencing increased levels of stress, most have had communication with their advisors, and few have sold more than 20% of their portfolios during the pandemic.
  • “We are seeing increased retail investor participation in equity markets during the pandemic,” said Tyler Fleming, Director of the Investor Office at the OSC. “The Ontario Securities Commission is closely monitoring retail investor experiences and behaviours during this time to support our investor protection mandate.”
  • The study has several findings, including:
    • Investment stress: 47 per cent of investors are experiencing increased levels of stress during the COVID-19 pandemic.
    • Holding investments: 85 per cent of investors have held all of their investments as a result of the COVID-19 pandemic.
    • Selling investments: Investors with low financial knowledge were the most likely to sell 20% or more of their investments as a result of the COVID-19 pandemic.
    • Working with an advisor: 81 per cent rated the advice they received from their advisor about investing during the COVID-19 pandemic positively.

The release states that “these findings will be used to inform further work to understand the impact of the pandemic on retail investors.” But not for the first time, the whole exercise seems infected by a degree of overstatement that the OSC would discourage from those it regulates.

For example, take the first bulleted item. We’re told: “Investors reported on their current level of stress and their perceived level of stress before the pandemic. Further analysis of these responses revealed that 47% of investors are experiencing increased levels of stress. Increased levels of stress can dramatically affect investment decisions by decreasing a person’s willingness to take risks (risk aversion).” The implication seems to be that this would be a “bad” thing. But two bullet points later, the correlation of “low financial knowledge” with selling 20% or more of one’s investments also seems coloured as an adversely-tinged finding. The study at least has the wherewithal to note: “We do not have sufficient data on each individual respondent to evaluate whether they should be selling or holding in response to the COVID-19 pandemic nor whether they sold due to financial hardship.” But really, that’s the only thing that would make this line of investigation worthwhile. We know that while the pandemic has been good for some (those who continue to be well-paid while having curtailed their expenses by staying at home and canceling many forms of discretionary spending), it’s pushed many into unemployment and financial hardship, such that being forced to sell some or all of whatever investment holdings they may have had would be a brutal inevitability. We can probably take it on faith that this life situation is somewhat correlated with relatively lower financial knowledge. But the issue here isn’t the impact on people as “retail investors” as much as the impact on them as victims of inequality (of a kind which capital markets are rather good at reinforcing).

Going back a step, the finding about increased level of stress echoes similar warnings from non-financial contexts: for example a CBC article stated that “an IPSOS poll investigating the mental health of Canadians found that 66 per cent of women and 51 per cent of men claim their mental health has been negatively affected by COVID-19.”  But to the extent that regulators have addressed investing-related stress at all, they’ve arguably only encouraged it. I’ll cite again the rush to extend filing deadlines, in Canada’s case allowing an additional 45 days to file December 31, 2019 annual statements, and subsequent interim statements. The Chair of the Canadian Securities Administrators said at the time that this reflected regulatory readiness to take action “to ensure market participants have the flexibility they need to focus on critical business decisions while managing risks to their employees, investors, customers and other stakeholders.” Whatever this means specifically, it certainly indicates the CSA’s acknowledgement of sufficiently heightened operating risk that its usual reporting expectations were suspended across the board. The most relevant question here would be to understand how an engaged or informed investor could consequently fail to experience increased stress. The answer might have something to do with their lack of reliance on formal financial reporting, which also brings us back to territory we’ve covered before.

Indeed, later in the same survey, we learn that only 10% of respondents rank continuous disclosure documents as the most important information used in deciding to buy or sell an investment (which at least beats the 4% who mentioned the prospectus). We must surely assume that the number who dig deeply into the financial statements constitutes some lesser fraction of the 10%. Maybe that’s partly why it wasn’t a bigger deal to make them wait…

The opinions expressed are solely those of the author

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