The pattern repeats closer to home
This isn’t only an overseas story. Take My Food Bag – during Covid lockdowns, it seemed genius. The company went public in March 2021 at $1.85 a share, raising $342 million. Customers loved the service and bought shares. Many retail investors had enjoyed watching co-founder Nadia Lim cook on TV for years – hardly grounds for a wise investment decision. The result? Shares now trade near 25¢ – an 86% decline. As one fund manager noted, “It was a classic private equity exit, which has seen a lot of retail investors lose out.”
Then there’s Ryman Healthcare, beloved by many Kiwi families for good reason. My own family experienced the amazing care and kindness shown towards my late father during his time in the dementia care unit at Ryman in Havelock North. The quality of its villages is genuinely impressive. Despite these strengths, the stock hit $10.87 in December 2019 and now trades about $2.87 – down 74%. The investment thesis crumbled under construction delays and regulatory challenges, demonstrating that exceptional service doesn’t automatically translate into strong investment returns.
The evidence against emotional investing
Behavioural finance research identifies “familiarity bias” as a major driver of poor investment decisions, where investors favour what they know rather than what performs best. This bias is particularly pronounced among long-term investors who believe they’re securing against volatility when they’re instead concentrating risk.
The evidence against stock picking is overwhelming:
An Arizona State University study by Professor Hendrik Bessembinder, examining over 28,000 stocks from 1926 to 2024, found only 4% of firms created all net wealth in the US stock market. The remaining 96% collectively matched Treasury bills over their lifetimes and most individual stocks reduced shareholder wealth compared with holding cash.
Professional fund managers fare no better. S&P Dow Jones Indices’ SPIVA Scorecard shows that after 10 years, about 85% of large-cap funds underperform the S&P 500, and after 15 years, about 90% trail the index. Even Warren Buffett admits: “In 58 years of Berkshire management, most of my capital-allocation decisions have been no better than so-so.”
The smart money questions
Instead of asking “Do I love this product?”, evidence-based investors ask: How big is the addressable market? What prevents competitors from copying this? How strong are the financials? Is the company innovating fast enough? What could make this product obsolete?
The answers usually point to the same solution: diversification. Diversified index funds consistently outperform stock picking over the long term, providing market-matching returns while reducing the risk of catastrophic losses from individual stock failures.
As a fee-only adviser working with evidence-based strategies, the real value isn’t in chasing hot stocks or validating product obsessions. It’s in building a robust financial plan grounded in decades of research, then maintaining discipline through market noise and emotional temptation.
Seek wise counsel, commit to a plan that aligns with your goals and redirect that energy from stock picking to living your life.
Your future self will thank you for choosing evidence over emotion.