In today’s hyper-connected world, the media has become influential in shaping investors’ behaviour. With a constant stream of financial news and commentary, it’s easy to feel informed, but this flood of information could also harm us as investors. Media influence can amplify emotions, distort perspectives, and potentially undermine financial performance. In this article, we will delve into how it happens and what you can do to protect yourself.
The dual narratives of stock reporting
‘Why ABC Stock Is Soaring Today’ — only to be followed a month later by ‘Why ABC Stock Plunged 10% in Just One Week.’
If you are actively updating yourself with news, I am sure you have encountered this kind of article. Media outlets are often guilty of selective reporting, crafting narratives that shift with market trends. When a stock is rising, headlines will abound with optimism about how good the stock or market is, yet when the same stock experiences a downturn, the tone shifts to doom, talking about how bad the stock is or about an old issue that has persisted for long. This tendency to amplify good news during rallies and bad news during slumps can create a volatile emotional rollercoaster for investors.
Such a reporting style could encourage reactionary behaviour. Investors might buy into the hype during a stock’s peak when every media outlet covers it, fearing they will miss out on further gains. Or they might sell in panic during a decline, locking in losses as every outlet talks bad news about the stock. Both scenarios can erode long-term returns and steer you away from rational decision-making, as the action is just buying high (media coverage highly likely means the price is already inflated) and selling low.
But we shouldn’t blame the media here—they’re expected to produce news for their readers every day. This sheer volume of financial news underscores the constant flow of information available to investors and market participants. It’s their job, and they’re simply doing what they’re supposed to do.
The psychology of media influence
Mainstream media thrives on attention, and sensationalism is key to excite the most readers and viewers to read. Headlines are designed to provoke fear or excitement and play on cognitive biases like FOMO (fear of missing out) and herd mentality. Consider GameStop as an example, where retail investors, fuelled by media coverage and social media, drive the stock price to unprecedented highs without realistic fundamentals supporting it. After seeing the news and being driven by potentially missing the ‘next big thing’, many latecomers bought in at ridiculously high prices, only to suffer losses when the bubble burst.
This psychological manipulation extends beyond FOMO. Panic-inducing headlines during market downturns can prompt rash decisions, such as selling fundamentally strong assets out of fear. By understanding these tactics, you can start to see the media’s influence for what it is: a distraction rather than a guide.
The problem of over-consumption
In the age of 24/7 news cycles, information is just one touch away from the sheer volume and frequency that can overwhelm even the most disciplined investors. Keeping yourself updated is good, but constant updates on market fluctuations can also lead to overtrading, where frequent buying and selling erodes profits through transaction fees and poorly timed moves.
Over-consumption also clouds judgement, and making readers more short-term focus. Your perspective shifts with every new piece of information, making it harder to maintain a clear, long-term strategy. Just the stress of staying ‘informed’ alone can detract from your ability to make objective decisions.
How to protect yourself from media influence
Since we can’t change the media, here is what we can do on our side:
- Limit media consumption: The most straightforward method is definitely cutting from the source. Avoid the temptation to consume every market update. Instead, choose a few credible sources and check them at a set interval.
- Develop a clear and long-term investment strategy: A well-defined plan helps you resist impulsive decisions. Stick to your strategy, even when headlines suggest otherwise. Focus on making logical choices that are in line with your long-term objectives.
- Focus on fundamentals: Instead of focusing on short-term fluctuations, we should go back to the basics. Rely on long-term data and financial analysis, if there is a change, determine if it is transitory or permanent rather than purely reacting to short-term news.
- Practice scepticism: It probably is if it sounds too good to be true. Not every person giving advice on the Internet is qualified. Question the motives behind the sensational headlines. Remember, media outlets profit from clicks and engagement, not your financial success.
- Take breaks: If you feel overwhelmed, periodically disconnecting from financial news to regain perspective is a great way. Use the time to review your goals and investment performance.
The fifth perspective
The media is unavoidable in modern investing, but its influence does not have to derail your performance. Not only mainstream media, but social media’s power in shaping our perspective on a particular stock or market is immense also. But by recognizing the media’s tendency to sensationalise, managing your information intake, and ultimately returning to your own investment thesis, you can better navigate the noise and make more informed financial decisions.
Here’s a suggestion, at least this works for me.
Maintain a spreadsheet to log portfolio(s) on a fortnightly basis. Include T-bills (a bond-ladder is a great way to do this) and other fixed-interest investments (like Astrea bonds). Track the total portfolio valuation and have a specific long-term target to reach by a certain date. R rebalance periodically with hard rules about maximum 5% exposure to any single share investment. Included in a simple chart that graphs where you are as a % of end target, and where you should be to stay on track to meet your goal.
With a minimum amount of discipline, this will help maintain perspective and calm nerves during wild market swings like we’re having now. It’s a good idea to maintain a minimum (say 5%) of liquidity for when the market crashes.
It’s a great idea! Tracking progress, setting clear rules and keeping cash ready for the dips, very solid way to stay cool, especially during market swings. Thanks for sharing!