Are you addicted to Investment Porn?
The hidden dangers for your portfolio
Hi Everyone,
In today's article, I would like to remind you of one of the biggest enemies an investor faces: Investment Porn.
What is Investment Porn? It’s media statements that make investors believe that anyone can become a millionaire in a short time, even with a small amount of start-up capital. From my point of view, however, the statements aiming in the opposite direction also belong to this area, particularly those of the Crash-Prophets. You rarely get rich quick on the stock market. And then only by taking high risks and having a lot of luck. One of the main reasons why investors lose their money is unrealistic expectations, which are reinforced by the absurd circus of financial media. There is actually hardly any meaningful information in the media on the subject of securities markets. Most of it serves to increase sales figures for all kinds of products related to investing. The latest opportunities, megatrends, price targets, and the like are constantly being predicted.
Magazines can do this, but the problem is that Investment Porn is not just useless, but extremely harmful. It appeals to our emotions and arouses fear and greed, the biggest enemies of an investor. It encourages quick and ill-considered action and is therefore one of the biggest return killers. Timeless investment principles that can make investors wealthy when applied correctly don't make for clickbait headlines.
Here are some of the most common misleading “methods”:
Wrong benchmarking. “This Australian mining stock has beaten the SPY 0.00%↑ by 324%.” 🚀🚀🚀
Showing nominal returns instead of real returns. Trading costs, inflation, and taxes are real costs that lower investor returns, they rarely are mentioned. Passive investors often fall victim to that, as I explained in this article.
Risks are played down or completely neglected.
“Price Targets”. (I really don’t know how so many pundits come up with such absurd statements)
The hype around countries and sectors.
Wrong backtesting. Often used to promote products/funds that worked well during “certain” periods of time.
“The big crash is coming”. If you are a perma-bear, sooner or later you will get it right.
“Buy NOW or miss out.”
“This Guru is buying xyz stock.”
Almost everything that is constantly announced in newsletters from banks and financial advisors, business magazines, and most of the internet should, like every pack of cigarettes, carry a warning: Caution, the use of this information endangers your financial health.
No one wants to hear that they can earn 10-13% annual returns over a 10-20 year period with a proven and, above all, old strategy. Most people do not have the patience for this and are simply too arrogant to learn the basics and apply them over time. That is why Investment Porn is so widespread and successful. If you knew where to find Gold, would you sell the map so others can find it?
Do you want to know the final boss of Investment Porn? Finfluencers (financial influencers) from social media, especially YouTube. Their job is not to give you any good advice or even insights from their investing experience (most don’t have any). Their job is to keep you hooked on their content so they make thousands from ad revenue (because that’s their main income source, not stocks).
This explains the eye-catching thumbnails and clickbait titles. Here are just two examples I found after typing in the search box: What stocks to buy?
Profit Big; High Growth; Buy Now; Rich AF etc. are tactics from the toolbox of emotional manipulation, as I explained a few sentences prior. Another investing mistake that those examples promote is trying to time the market. There is no such thing as a “best recession stock” that will make you rich. Investing is a constant process and if done right, you simply find less good price/value opportunities at the end of an economic cycle and more of them at the beginning of one. That’s it. If you have a strict selection, you invest less when prices are high and find more bargains when prices are low. This is your protection against market turmoil. But to learn this requires patience, which most investors lack.
Final thoughts
Successful investing is boring. It’s a framework that you repeat over and over again and, as time passes, you start seeing results. You stay away from stocks that don’t fit the classic investment criteria and add those that fit. There is little excitement in reading annual reports and analyzing businesses, hence so many choose the “exciting” way - and lose in the end. Every quarter most companies report their result and management gives you guidance on what you can expect in the coming quarters. They tell you how inflation and interest rates affect the business and what to expect. No need to listen to pundits who have no skin in the game.
I hope you learned something today, until the next issue. 👋