For decades, fund industry marketing was hugely successful. Fund houses would invest tens of millions of pounds every year on getting their products in front of consumers. It was awesomely lucrative, and to an extent it still is. But why is fund industry marketing so effective? As ROBIN POWELL explains in his latest article for Timeline, it’s essentially down to what psychologists call confirmation bias.
For several years in the early 2000s, Rudy Kurniawan was a well-known wine collector and dealer. He specialised in rare and valuable wines, particularly Burgundy and Bordeaux, and became a multi-millionaire. Wealthy people relied on him to guide them toward the most delectable wines.
The problem was that Kurniawan was a fraudster. He was actually selling cheap red wine with fancy-looking labels. He was found guilty on multiple charges in 2014 and sent to prison.
So how did he manage to get away with it for so long? How did he manage to fool so many people? Even top wine connoisseurs believed his wine was exquisite.
The reason is simple: human beings have a powerful confirmation bias. In other words, we tend to see or hear what we expect to encounter.
When Kurniawan invited sommeliers to try his wine, he told them they were about to taste a highly sought-after vintage worth thousands of pounds a bottle. Their taste buds were primed to taste something exceptional – and so they did.
The story of Rudy Kurniawan should serve as a cautionary tale to investors when looking for a fund to invest in.
ABOUT THE AUTHOR
ROBIN POWELL is the editor of The Evidence-Based Investor. He works as a journalist, author and consultant specialising in finance and investing. He is the co-author of two books, Invest Your Way to Financial Freedom and How to Fund the Life You Want, and his company Regis Media provides high-quality video content for advice firms and other financial businesses.
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