There’s a lot of noise out there – don’t listen to it – Twin Cities
Market “noise” is any information that distorts underlying trends in the economy or financial markets. We see many of these in the daily jumble of advertisements from financial firms and self-serving opinions from investment experts.
Many market players use noise rather than factual information to make trading decisions, relying on news trends, apparent price rises or falls, or word of mouth rather than hard work. business analysis. The problem with market noise – and why you should avoid it – is that it can be difficult to determine what is really driving a trend, if a trend is changing or if the market is simply experiencing short-term volatility. Generally, the shorter the time frame, the more difficult it is to separate significant market movements from distorting noise.
They’re called ads for a reason.
With stock tickers constantly scrolling on cable TV, you have to think about how these channels are paid for: by Wall Street companies promoting their services on these same channels. Wall Street is designed to drive up stock prices because not only do they benefit from the sale of those stocks, but they get paid to promote the companies that pay them to issue those stocks. Wall Street wants the public to take action that benefits Wall Street. This may or may not benefit the general public.
Which media should you treat with a healthy dose of skepticism?
• Shows that teach you HOW to get involved — These programs work on a simple principle: make enough bets and you win. Or you ? Suspicious programs usually promote enrichment schemes such as how to use other people’s money to buy real estate or other schemes such as how to use puts, calls or options to increase yields. What they don’t tell you is how leverage and derivatives can also work the other way around. And while you may be able to follow the stock and bond markets and make good investment decisions, and even have fun doing it, you have to remember that there is someone on the other side. of each transaction. Professional investors have access to in-depth research, specialist knowledge of industries, markets and geographies. They have tons of data to back up their investment decisions, as well as the time and determination to develop and implement a strategy.
• Shows that tell you what to invest in — The list is endless. So-called market specialists promise to show you – for a fee, of course – the inside track on how to invest in the “hottest” asset classes, such as Bitcoin, foreclosed mortgages, non-fungible tokens (NFT) or Icelandic Certificates of Deposit (CD). They tout the advantage of making huge, concentrated bets on a single asset class, often promising outsized returns. Often these recommendations come after the big money has already been made.
• Telephone solicitations — Years ago, Bruce got a call from someone trying to sell him an initial public offering (IPO). He asked the appellant how he knew this investment was good for him. The caller replied that it was “good for everyone…a ground floor opportunity”. Bruce told the caller it would be like offering to sell 50-pound bags of dog food for a penny a bag. You will never see such cheap dog food again in your life. But what if you don’t have a dog? You would have absolutely no reason to buy dog food. The thing is, if you don’t know me or my financial situation, how do you know this investment is right for me?
• Newsletters and Websites — Financial media, which includes social media, newsletters and investment-focused websites, increases anxiety by focusing on financial items over which investors have no control, such as inflation, oil prices or interest rates. Or they focus on strategies that they believe will exploit market bubbles and corrections. The problem with these unregulated channels is that they tend to work: a third of Americans act on financial advice found on social media, and 32% say they trust social media influencers and financial advice from celebrities. . If such “foolproof” strategies were really successful, why would developers be selling them? They would be on the beach. Sensible investors know that making good market choices is extremely difficult and that time in the market is far more valuable than market timing.
Do what the rich and famous do
The situations of fabulously successful investors are very different from those of the regular investors targeted by noisemakers. Great wealth comes either from the concentration of equity in a company (think Warren Buffett with Berkshire Hathaway or Bill Gates at Microsoft); phenomenal personal brands (Oprah, Jimmy Buffett or Michael Jordan); or by inherited wealth. But none of these ultra-rich got rich on their own! Most have had a team of advisors throughout their careers to help them.
The rest of us primarily build our nest eggs through a combination of career income, a company-sponsored retirement plan, and personal investments — and by having a plan, knowing what to invest in and why. If you don’t have the time or inclination to do this work yourself, seek out a qualified financial advisor who can help you prepare for market declines, seek out new market opportunities and, perhaps most importantly, , help you disconnect from the market. noise.
The opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations to any individual.
Bruce Helmer and Peg Webb are financial advisors at Wealth Enhancement Group and co-hosts of “Your Money” on KLKS 100.1 FM on Sunday mornings. Email Bruce and Peg at [email protected]. Securities offered by LPL Financial, member FINRA/SIPC. Advisory services offered by Wealth Enhancement Advisory Services, LLC, a registered investment adviser. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.