In today’s 24/7 news cycle, business media has turned into a never-ending carousel of one so-called investment guru after the next. In her book, “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry,” Helaine Olen cites a Univ. of California study that found anytime a stock was mentioned by name on CNBC, its price immediately increased –– whether the news was positive or negative.
This is not a trend we should be thrilled about.
For starters, if a guy sitting in front of a half dozen cameras on national TV is touting stock advice, one thing is for sure: You’re not the only one listening.
The minute a tip comes out of their mouths, it’s old news that has been heard by thousands if not millions of other investors and, consequently, has already lost whatever minor edge it may have given you.
“Although individual investors are net buyers of attention-grabbing stocks—stocks that are in the news or that experience abnormal one-day returns or trading volumes—these stocks subsequently do not perform as well as the stocks that the same investors decided to sell,” the SEC reported in its study “behavioural Patterns and Pitfalls of U.S. Investors.
Your best bet?
Treat talking market gurus like the ad-selling entertainers they are meant to be, and take their advice with a huge dose of salt. Maintain a properly diversified portfolio (ex: a mix of stocks, bonds, cash, and real estate that should be recalibrated according to your risk tolerance as you age) that will weather whatever storm may come, and you’ll be all the better for it.
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