INVESTOR BEHAVIOR IN ROMANIA

When it comes to money and investments people are not always as rational as
they would like to think. Many psychologists have tried to identify and explain how
emotions can influence the decision making process in this field and where does the
intuition come from. Other scientists have conducted surveys on the general economic
theory according to which people act in a rational manner, surveys that have showed that
in most cases this theory doesn’t apply. In 2001, Dalbar, an American Financial Analysis
Company, has published the survey “Quantitative Analysis of Investor Behavior” which
concluded that the average investors fail in obtaining results more profitable than a mere
bank interest.
Personal investments are made according to the person’s hunch (to which we might
also add his /her educational or information degree), according to the risks he or she
affords to take and according to his or her character. One can identify tree types of
investor behavior:
- The prudent investor who usually prefers the bank placements
- The moderate investor who has some knowledge regarding the stock market and
is inclined to make mixed investments
- The adventurer, the investor who takes risks.
The prudent investor represents the Romanian type of behavior. The reason for this
labeling is reflected in Romanian’s general behavior which is still strongly affected by
the old habits developed during communism. The lack of information and the lack of an
investor culture in Romania have generated a lack of trust in the idea of investment itself.
During the communist period people were discouraged in their attempts to invest,
moreover, the dare devils have been put under close surveillance or even imprisoned if
they were unable to properly justify their incomes or deposits. Therefore the natural
outcome was that whatever people managed to save had to be secretly hidden.
Unfortunately this type of behavior is now to be recognized in the middle class way of
thinking: their economies have to be secure at any cost. The perspective that those
savings won’t bring a future profit is more acceptable than loosing any part of it.

One of the most eloquent example that come to support this idea is the Financial
Marketing Survey made by IRSOP in Mai 2000. This study intended to establish the
investor behavior manifested by persons with incomes larger than the average who live in
Romania. This study has identified two major causes for the Romanian’s reluctant
approach towards investments:
- The lack of information and a close analysis of the investment procedures and not
knowing how to follow the investment in time
- The lack of surveillance and regulation which should be provided by the
authorities in charge, an inappropriate legislative framework, and the lack of transparency
of the societies which operate on the money market.
Today’s technologies can provide a proper information medium for investors and
therefore the lack of information could be easily repaired, even if the financial incomes of
a family don’t provide much ground for an investment. According to the Financial
Marketing Survey only 20% of all interviewed families can make savings on a regular
basis, while 62% saves sporadically and 18% can’t save at all. Among those who save on
a regular basis, the average savings raise up to 25% of their incomes which, due to the
lack of information, they intend to invest the money in commercial banks and CEC
(51%), to contract an insurance premium (38%) or to place their money in currency at
different commercial banks (17%) and only 9% intend to invest in mutual funds in the
near future. Even if this study has been preformed before the FNI scandal and even if
nowadays investors begun to reconsider these types of investments as a profitable
alternative, the mutual funds are not in the consumer’s top preferences.
 Fig. 1.

As one can see, the most preferred method of investment is the CEC due to the
fact that this institution satisfies the Romanian’s need for security: it is known to be a
solid and strong institution and the State guarantees full recovery of the sum invested.
Due to the fact that Romanian investors are not sufficiently informed on the
banking institutions that operate on the Romanian market, the foreign banks are ranked
among the less proffered.
On the other hand, another recent study performed in 25 countries by Henley
Center Headlight Vision for Aviva Life Insurances Company in 2008, shows that 18%
of the subjects choose not to place their money in banks due to the low interest rate. 63%
state that they are not interested in making long deposit investments due to the fact that
they need immediate access to their economies and 17% have responded that they can’t
make economies due to the credits they have contracted. So the final outcome of this
study was that 48% of the subjects don’t afford to make any kind of savings – the last but
one place among the other regions in which the study was conducted: Central and Eastern
Europe.
Going back to the Financial Marketing Survey, one of the most surprising results
of this survey is that a high percentage (16%) of subjects that intend to buy quoted stocks.
Furthermore, 9% of the interviewed persons follow on a regular basis the evolution of
quoted stock at the Stock Exchange, while 52% does this research sporadically. This
situation indicates the fact that the money market has a real potential in Romania but this
potential is not fully used due to some problems regarding both the market itself (the lack
of information and transparency) and the macro-economical problems (poverty, insecure
financial climate, etc). The most attractive quoted shares are presented in the table above:

Fig. 2. 1

One can observe that the most attractive shares are the ones emitted by the most
notorious societies; and this preference is not very influenced by the performances of
those shares on the Stock Exchange. For example Dacia Pitesti doesn’t justify its place in
this table having in mind the poor performances of its shares on the market.
Mutual funds, on the other hand, are quite unattractive according to this study.
Only 14% of the subjects consider them to be a profitable investment solution, 57% don’t
consider such an investment as being a good placement, while 29% stated that they don’t
know whiter they trust it or not. Event after that FNI scandal has ended (which is also a
vivid proof of the investor’s poor investment culture- for the fund’s assets structure was
published monthly in the economic press, and the investors could have at least spotted
some problems due to the fact that massive investments have been made in non-quoted
stocks-) the average Romanian investor hasn’t considered this investment alternative as a
secure one. This situation might be caused once again by the lack of information, but
most importantly by the Romanian way of thinking. The sums invested in mutual funds
are not guaranteed by the State, therefore, even if they are profitable, the Romanian

1 http://www.kmarket.ro/documentare/arhiva/irsop.html
investor will not take any interest in risking to lose its entire deposit sum, and after the
FNI scandal, the investor associates these societies with bankruptcy. Unfortunately the
present economical situation doesn’t have much to offer for these types of investments as
long as the European administrators are now looking to close those funds that have
entered in liquidation crisis or to suspend the withdrawal operations as an EFAMA2
reports shows. Furthermore, with regard to similar investment methods, Romanians
prefer the unit-linked funds3 than placing their money in mutual funds units. For example,
in 2006, the investments in mutual funds units have reached 236 million lei, but at the
same time only the assets of unit-linked funds administrated by ING Asigurari has
reached 540 million lei. This enormous difference proves once again that investment
methods that bring the most secure way of investment are the most preferred.
The present situation doesn’t support by any means the Romanian’s reorientation
towards other investment methods, for the prudent investor will continue to search for
secure means of investment that are less probable to be easily influence by the global
crisis.
Even if the Financial Marketing Survey is not the most recent research tool
regarding the investor behavior in Romania, is still clearly demonstrates the same
orientation, for in 2007 the mutual funds existing on the market have managed to attract
only 84 new investors4. This means that, for the first trimester of 2007 each fund has
managed to attract less than ONE investor per month! And in reality this number is much
smaller, for UNOPC5, the institution that has performed this survey has counted several
times the same investor if he had invested in several funds.
On the other hand, it is very interesting to note that despite the communist
behavior stereotype, Romanians do not find much interest in depositing their savings in
gold. Even though this form of investment was quite common before 1989, for gold
jewelries were easy to hide and they guaranteed that their value will be preserved in time,
the nowadays Romanian is no longer interested in this type of investment, even thought

2 European Fund Administration Association

3 These insurances have two components: one is a traditional life insurance and the other one is an
investment component
4 In 2006, the number of investors in mutual funds was of 78.380. At the end of March 2007, they were
78.464, according to UNOPC.
5 The National Union of Collective Placement Organisms in Romania
the price of gold is rising constantly. Global Council Data regarding the Gold show that
by the end the third trimester of the year 2007 the demand for gold, at a global scale, was
more than doubled compared to the first trimester of the same year. Once again,
Romanians make the exception.
In conclusion one can state that the Romanian investor behavior is an extremely
cautious one due to the small amount of money people can, save the lack of information
on the available investment alternatives and finally their preferences of better keeping the
money in a secure location than risk to lose a part of it while seeking profit.
BIBLIOGRAPHY:

http://stiri.acasa.ro/articole/finante/romanii-prefer-fondurile-unit-linked-n-detrimentul-
celor-mutuale
http://www.kmarket.ro/documentare/arhiva/irsop.html
http://www.banknews.ro/stire/20443_psihologia_comportamentului_investitional,_o_eni
gma_greu_de_elucidat.html
http://www.zf.ro/analiza/investitori-mici-si-investitori-mari-3000996/
http://cristianpaun.finantare.ro/2008/12/23/comportamentul-investitorilor-in-conditii-de-
criza/
http://www.marketwatch.ro/articol/1426/Am_un_leu_nu_vreau_sa-l_beu/
http://www.zf.ro/burse-fonduri-mutuale/fondurile-mutuale-au-atras-doar-84-de-
investitori-in-t1-3030884/