How easy is it for Singaporeans to fall victim to herd mentality? April 10, 2018 -Vina Ip, Property Soul

We were waiting for the lift in a shopping mall. Only two lifts were in service for the whole building, including the top few parking levels.

More people joined us after they parked their cars. Two families moved next to us. Another three groups stood right behind.

The lift on the right was full after it reached the fourth storey. Instead of continuing to go up, it descended to the third floor.

Seeing the lift on the left slowly climbing up from the ground floor, a couple found their way to get in front of us. I could feel strangers pressing closely behind.

Feeling uneasy, I came up with an idea.

“See, I told you the two lifts are faulty. They never go up to the parking levels. We have waited so long for the lift. We should have taken the escalator instead.” I grumbled. My husband said nothing.

Overhearing what I said, the guy in front told his wife, “Come, let’s take the escalator.”

Seeing the couple walk away, one by one, other groups all followed them to the direction of the escalator.

Just when the crowd was gone, the lift on the left opened. It was empty inside.

Not long ago, I had successfully “driven out competition” using exactly the same trick.


Why people fall for the lift trick

Did you see why this small trick works like a charm?

Why would people trust the words of a stranger like me?

Had anyone checked whether the lifts were really faulty?

Did they notice that we hadn’t moved an inch, and were still standing and waiting at the same place after everyone left?

Here’s the scenario: Everyone was eager to get into the lift. So when the lift on the right didn’t go up at all, people were all afraid of missing the other one. They had to get in this time no matter what!

But when someone who had waited for the longest time claimed that the lifts were out of order, they changed their mind: That’s why the first lift didn’t stop at our level. That’s why she was waiting there with her husband and kids before we came. That’s why the couple in front walked away. That’s why we had to follow them and not to waste time any more waiting for the lift.


Why buyers follow the herd to buy now

It’s a Singapore dream to upgrade from HDB to condo. It’s conventional wisdom to buy properties to accumulate wealth. Everyone is eager to get there. But no one know when is the right time to buy.

So when the analysts said the market has bottomed out; the property agency said there is high liquidity to invest in properties; the developer said the area is filled with real pent-up demand; the bank said property prices are going for double-digit growth this year, … desperate buyers couldn’t wait to flock the sales galleries.

Seeing the big crowd at the launch over the weekend only proved them right. What the media said is right. The market has picked up again. That’s why everyone is buying now. That’s why we can’t miss the boat too. That’s why we have to buy it fast and buy it now.

Over the last weekend, Oxley Holdings sold 129 units of The Verandah Residences at Pasir Panjang at an average price of $1,815 psf. Lendlease launched the second phase of Park Place Residences at Paya Lebar and sold 149 units at $2,000 psf, Prices have increased 11 percent compared with $1,800 psf in Phase 1.

Did any buyer care to check prices of similar projects in the surroundings? Did any “investor” go and calculate the ROI with current rental return and new interest rate?

Did buyers of Park Place Residences notice that small units of nearby project The Waterina were recently transacted at $1,200 to $1,300 psf only? Do they know that instead of buying at $2,000 psf at District 14, they can top up $200 to $400 psf to buy at prime districts?

By buying new launch projects at sky high prices, the buyers themselves are helping to fulfil the prophecy of further increase in private residential prices in URA and SRX’s next property reports. Thanks to their cooperation. Other developers can look forward to launching their projects from newly-acquired sites at even higher prices per square foot.


What property buyers are lacking

In Singapore, we don’t lack scholars and talents who excel in mathematics, science and technology. But we lack a generation with independent thinking, the creativity to think out of the box, and the courage to promote their bright ideas.

In the property market, we don’t lack buyers and investors who have the will and money to buy. But we lack buyers and investors who have individual judgement, who know how to make their own decisions rather than buying under ignorance, greed, fear, insecurity, kiasu or herd mentality.

Many lack the ability to think for themselves, and differentiate whether the information presented to them is true or false. Instead of evaluating risk and return, they go along with others, thinking that it is safe to follow the majority. And the herd goes around like parrots repeating what everyone is saying.

Many people look for safety and security in popular thinking. They figure that if a lot of people are doing something, then it must be right. It must be a good idea. If most people accept it, then it probably represents fairness, equality, compassion, and sensitivity, right? Not necessarily.

– John C. Maxwell, How Successful People Think

Unfortunately, as what investor David Skarica had pointed out, from time to time “the market wants as many people to be wrong as possible” and makes everyone go under at the same time.

Allow me to quote from my book No B.S. Guide to Property Investment again.

It may be ironic, but in investment, it is often easier for people to justify their loss than to miss an investment opportunity.

In fact, people feel more terrible missing the opportunity to make money, compared with the consequence of being stuck with a bad investment. When the market crashes, it is common to find others who end up with the same fate. And it is a relief to know that ‘we are all in the same boat’.

Are people afraid of missing the boat and can’t wait to jump into the water? Or do they think that the sinking boat is safe provided that the majority of the people are there?  https://www.propertysoul.com/2018/04/10/fall-victim-to-herd-mentality/