Conflicting Signals
Key Takeaways
For every opinion out there, there’ll be a counter-opinion. The problem with financial advice given through the news is that they are provided with no responsibility for the outcomes that the investor heeding them will have to face.
Reputable organisations will often air the opinions of ‘experts’ to comment about the best place to place your money at any given moment. Some simple questions to remember when considering such advice:
Are those funds the only assets they have?
How does their timeframe and needs compare to yours?
What were their experiences with past market crises?
Confusing speculation with investment is always a mistake
— Benjamin Graham
It is not surprising to feel overwhelmed with news and information these days. The instantaneous flood of breaking news, economic reports, and global events can cause confusion and uncertainty in discerning the right course of action, especially for your investments.
As headlines change and stories evolve, it becomes harder to tell what is pertinent and what is not. A simple Google search on the global economy throws up conflicting news reports.
If you had searched for a stock market outlook, be confused even further by reports suggesting that stocks will either do well or do poorly.
The problem with perpetually tuning in to what is happening around the world is that you are subject to a multitude of differing opinions. This advice is rarely consistent and is in a constant state of flux, shifting and morphing to best present the big stories of the day.
Financial news provider Bloomberg frequently features articles asking “experts” about the best place to invest money at the moment. The latest iteration suggested Artificial Intelligence, infrastructure, microcaps, and even uranium! Unfortunately, most of the advice given is extremely diverse, and frequently changing, and the worst part — is given with no element of responsibility for the outcomes you have to face from putting your money to work. It can be extremely confusing when such opinions are stated with such confidence in the expectations of returns, when in fact there are no such certain returns.
If making money was truly as easy as they claim, no investor would suffer losses — every investor would simply tune in to the news, get the latest advice, and make a killing. Instead, this flood of conflicting advice serves only to cause decision paralysis, overwhelming investors with so many choices that they struggle to know what to do. Most of those bold claims obscure how rare successes in these investments actually are, or how dependent these successes are on luck. They also fail to mention the risk involved, and how much you could stand to lose.
A frequent question that pops up in our interactions with clients is “How is the market and where should I be investing?” It is so tempting to offer up an unverified opinion and promote a range of strategies to "take advantage" of the moment.
But that would be irresponsible.
Such advice does not take into consideration many of the other important factors that you need to consider before putting your money to work. When receiving concrete advice from others, stop and think about whether their life situation is similar to yours, asking these questions:
Are those funds the only assets they have?
When would they need the invested money? How does their timeframe compare to yours?
Do they have cash reserves or other forms of cash flow?
What were their experiences with past market crises?
What have their experiences been with their current advisers or banks?
When would they want to sell?
In his book, Reducing the Risk of Black Swans, author Larry Swedroe related a story where following the dot-com crash in the 2000s, he met with a 71-year-old couple who had $3M in assets and was seeking advice. While $3M might certainly have sounded impressive, just 3 years prior, their portfolio had been worth $13M! The only way their assets could have fallen by such a magnitude was if they were previously heavily invested in technology stocks, which had cratered during that time.
The painful part was that they did so only on the advice of their financial adviser. That adviser had recommended funds that were significantly skewed towards large-cap growth stocks, which then suffered tremendous damage in the crash.
Most investors acknowledge that the proper way to go about it would be to diversify globally and avoid concentration and thematic ideas of the day — even if it promises exceptional returns. And yet, most people fail to follow this simple formula, perhaps because they can't find a simple and effective way to implement it or because they think investing cannot possibly be that simple. Or maybe the temptation for large returns is just too enticing.
Similarly, many people know what steps they need to take to be fit. Regular exercise and a healthy diet. But yet smoking, alcohol, and unhealthy foods are still wildly popular. There are too many physical and behavioural obstacles that can get in the way of them turning that good advice into reality.
The world is continually spouting both good and bad advice. Distinguishing between them is the easy part, once you learn how. Putting that good advice into practice is what is hard, but that's also what will ultimately pay off rich dividends in the end.
This is why an independent advisor is so valuable — like a personal trainer or dietician, we are here to track your progress and to offer small nudges in the right direction. But ultimately, your success is up to you.
