A large section of the population doesn’t know the first thing about investing and is therefore very susceptible to ‘noise’. Even those who invest regularly are susceptible to noise – it’s natural and it’s deafening. Most of the noise is around speculative activity, as opposed to sensible long term investing.
Noise is generated by newspapers, specialist magazines and websites, the media in general, and of course that guy in the pub who swore that Bettystown was going to be the new hot property ticket. They all have vested interests in promoting this share or that property investment.
Noise feeds into some of the human behaviour that messes up our best attempts at strategic investment. Herd mentality, over-confidence, over reaction and loss aversion are all fuelled by noise. These behaviours cause to lose our nerve and make rash decisions which are more akin to speculation.
Noise lives on the Internet and in the traditional press. Check out some of the examples I found without even looking.
This ad encouraging people to subscribe to Investors Chronicle – albeit the magazine is high-quality and well-written – is encouraging investors to assess the markets from the speculative standpoint. I suggest that spending £3.18 per week on subscribing to The Investors Chronicle is the quickest way to lose nearly €200 per year, and a hell of a lot more, if you get sucked into the tips and predictions.
The hot stock pick turns cold
The fact is that industries or companies hailed as the next big thing don’t always live up to expectations. Just think back to the so-called dot-com bubble of the late 1990s, when the commercial growth of the internet fuelled unreasonable market confidence that anything with ‘e-‘ in the company name would be profitable.
This combined with widely available venture capital created an environment in which many investors were willing to overlook traditional metrics and were falling over themselves to invest in internet business models. Many companies crashed and burned, such as Lehman Brothers, and their investors with them.
Closer to home, readers of the Sunday Business Post might have been attracted to this ad back in 2016. It was a 24 month investment term, so if you did invest, let me know how it worked out for you.
A 10% return is ‘available’ it says – sounds tempting. It’s ‘100% secure’ – where do I sign up? The asset in question is property. Unless you are already well diversified by the time you come to Triple Lock Property’s scheme, you will be focusing on just one asset class, which is never a good idea for sustainable long term investing.
Anyone investing in a scheme such as this is looking for pure capital appreciation as opposed to a long-term return and should have his or her eyes open to that. There are a few other issues with this ad. Who provides the security? Email triplelockproperty@GMAIL.com?
If you are in this for the long haul, you can and should ignore the hot stock picks and next big things. Your investment activity should be based on academic research on the performance of the markets. Academics are not driven by vested interests. They just crunch the numbers and publish the results.
Academic research shows that over the long term, it doesn’t pay to pay a fund manager to try to pick out stocks that are mis-priced. The stock market adjusts all by itself based on the millions of pieces of information about stocks and economies feeding into it every day.
At The Money Advisers, we trust in the all important investment principles of diversification and asset allocation, not in individual fund managers. Speculation is a game, but if you don’t want to play the game, a sensible investment strategy is still a very real option for you.
Get started with The Money Advisers.