It seems that the average investor has the wrong information when it comes to investing in the stock market.
Although one cannot logically dispute general concepts such as “buy fundamentally cheap stocks” and “buy low and sell high“, the typical investor doesn’t have an idea how to use these principles to improve their chances of making money.
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The problem lies with one group that is considered the primary source of investment information. The priorities of this group don’t align with those of the typical investors. In fact, beginner investors don’t receive the right kind of information to outperform the market.
This is because the people who claim to provide the information aren’t even aware of what it would like to be a retail investor. On the other hand, they always have other considerations that take priority over investment advice for small timers.
Ready to know who this “group” is?
The Financial News & Media
The typical investor obtains information about the stock market by reading financial publications such as Forbes, Money, and Wall Street Journal and watching market-oriented TV shows such as CNBC.
Although you may find entertaining information in these places, they are of little use most of the time. In fact, the primary goal of financial media is NOT to help YOU make money but to get eyeballs (attention), subscribers, and advertisers to their business. The financial media doesn’t make money by providing you with good money-making advice but by releasing news items that attract readership and attention.
The media loves to feature stories from market gurus who make outrageous predictions about the stock market. “Meet the guru who predicted the last 4 market crashes”. Sounds distinctly familiar?
Such information will stir up emotions and attract the required attention, but it will not help you make money. For example, a TV Show or Magazine that predicts a 50% market increase in 2017 will receive a lot of attention. But this type of information is quite dangerous to the small-time investor.
Such headlines will make you less prudent when making investment decisions. It can lead to heavy losses since we are swayed by swirling emotions and invest without a defensive game plan.
The main reason popular media does not give practical advice is because most of those who give such advice are professional money managers or journalists who don’t own stocks themselves. In fact, most of the large financial media outlets discourage their employees from giving practical advice. ‘Conflicts of interest’ issues would outweigh other considerations in this regard.
Successful individual investors are usually omitted from providing practical advice to other beginner investors with similar needs, wants, and circumstances. Rarely, would you find a successful retail investor being featured on news or television. More often than not, the media interviews the professional analysts, economists, fund managers etc.
Most of the successful small-time investors are mostly low-profile. The best ones seem to become professional money managers for their friends and family member. When friends and family members see the individual making money with stocks, they would ask these investors to manage their funds.
The small-time investor who makes good profits year after year is not someone who has connections with the mainstream financial media. Ironically, such an individual is the best person to give advice to other investors via popular financial media.
What we mostly see or hear on popular media is advice from fund managers who manage billions of dollars. They don’t have a real understanding of the situation of a retail investor. There are also journalists who write about the market. But they understand the market only on a theoretical level.
The people who control the financial media don’t really care that the investment advice they provide is badly skewed. These big media institutions pay their bills through advertising. The worst part is, these people believe that conventional Wall Street dishes out good advice. They have no idea whatsoever that there are ways to approach the market beyond the information from the big media institutions and the brokers.
This is why you need to be cautious when faced with investment advice given in the financial media. They may not be the best advice for the individual investor. I am not saying they are not useful. But you will need to filter out the good advice from the bad.
I hope you will see the financial media in a new light.