almost 2 years ago • 1 min
Financial journalists write about profitable ideas, yes, but that’s not their only objective: they’re also aiming to generate clicks. As you can see in the chart above, a recent study found that these journalists tend to write the most about controversial companies, followed by big companies, and then companies with popular products. High growth, share price movement, and a well-known CEO all make press more likely too: it’s no wonder Tesla’s always in the news. The issue is that these things are more likely to be features of a good article than a good investment.
We, as humans, have a tendency to overweight information that’s easily available (the “availability bias”) and fits a clear narrative (the “narrative bias”). So, sometimes we have trouble differentiating between a nice story and cold hard facts. That can impair our judgment and lead to poor investment results: a popular product doesn’t necessarily make a great company, after all, nor does a great company always make a good investment.
That’s not to say you should avoid popular stocks, but that you could benefit from reading the news with a healthy dose of scepticism. Ask yourself whether the author is covering a specific topic because it sells, or because it’s actually a good opportunity. You’ll often find that both are true – but asking this question will help you to reduce your bias. Next time you see a stock in the headlines, pause for a moment and make sure you’re considering it for the right reasons.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.