If there is one thing we know from history, it is that people are vulnerable to hype – be it positively or negatively geared.

A few weeks ago, India announced it was stopping non-basmati white rice exports following a season of flooding and subsequently poor yields. This potential scarcity led to crowds in the US stocking up on rice, creating an artificial scarcity before the real one could even be felt.[i]

Financial ‘news’ works similarly. Herd mentality only seems to be a growing risk in our current digital age, as saying whatever you want on the internet becomes more and more accessible regardless of actual expertise.

Think of any of the recent sensationalised stories on the stock market. The wobbly banks of earlier 2023, or the Reddit-driven squeeze on Gamestop in 2021. You will notice that these events are typically presented as all in, like Gamestop, where the stock price was pushed up 1500% over the course of two weeks as hype grew;[ii] or all out, as with the successive losses of investor confidence in Silicon Valley Bank and Credit Suisse.[iii]

An important thing to keep in mind is that any news regarding financial markets is outdated by the time it makes headlines. Whether the stocks continue down or bounce back, all sensationalist headlines do is encourage knee-jerk reactions from nervous investors.

It isn’t just established news outlets causing panic. There is also a rift where certain groups no longer trust traditional media and seek information elsewhere. According to an article by Forbes in 2022, Gen Z in particular is five times more likely to get financial advice from social media than other generations. Not that other generations are exempt from this; Gen Z simply tends to use social platforms more and as such has more exposure to this content. And with any social media, algorithms tend to show ‘more of what you’re interested in’. It can feel like you are seeing this advice or product everywhere, reinforcing what a great idea it is.[iv]

Not only are non-professionals and snake-oil salesmen a risk, but scammers are also infiltrating these same platforms via paid advertisement, posts from fake profiles, or ripping content from legitimate sources and simply switching the link to a fraudulent one.

Platforms like Tiktok (and the subsequent rise in short format video over Meta apps and YouTube) have also made many social media platforms feel incredibly personal to the viewer, creating an artificial sense of connection and trust. If someone popped up on your screen – clean cut, completely normal looking, saying they want to help you, yes you, get ahead – and showed screenshots of the incredible wealth they gained by using this easily accessible product or service… it may be tempting to check it out.

As always, my advice in these situations is to be sceptical. Whether it’s a flat-out scam or a case of stock-picking that will inevitably go sour, you are better off sticking to the tried and true than listening to sensationalists in any form of media (social or otherwise).

The only reason to be nervous about stocks going down in a certain company, industry or country would be if you had everything invested in that one area – which is already a bad strategy as it is impossible to anticipate the movement of markets. Anyone getting rich off predicting stocks is not an expert, they’re just enjoying the luck of the draw being in their favour right now.

Staying in your seat and maintaining the status quo in times of strife (or sensationalism) is a more effective investment plan to help you capture the highs along with the lows with the fullness of time. If you are taking on risk for potential gain, make sure you do so with a globally diversified, robust portfolio, constructed with fluctuations, corrections, and your long-term goals in mind. Diversification can reduce the potential pain caused by the poor performance of a single company, industry, or country.

Don’t feel like you need to do something with your portfolio just because the headlines are getting loud. Research shows us that active investment is not a winning strategy over time. Rather than worrying about dips, think of the highs you can capture with the fullness of time – big picture, rather than today’s snapshot.

No one can predict the future. But if you want to start planning yours, or you would like a second opinion on your investment strategy, finding with a local and accredited fiduciary is a much better place to start than scouring headlines or Facebook forums.

·         Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 319.

·         The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz

[i] https://abcnews.go.com/US/wireStory/india-cuts-rice-exports-triggering-panic-buying-food-101818709

[ii]https://en.wikipedia.org/wiki/GameStop_short_squeeze#:~:text=In%20January%202021%2C%20Reddit%20users,of%20the%20stock%20would%20decrease.

[iii] https://www.stewartgroup.co.nz/we-love-to-write/a-swiss-miss

[iv] https://www.forbes.com/sites/petersuciu/2022/10/25/bad-advice-gen-z-increasing-relies-on-social-media-for-investment-strategies/?sh=43961393730d