Don't Fall For Investor Scare Tactics as published in InsideNova.com
January 19, 2018—With the U.S. stock market at all-time highs, I’ve noticed a spike in the number of financial gurus predicting it soon will fall – a lot.
Every so often, the market has fallen a lot on its historical trajectory to higher highs. But, while we may wish otherwise, nobody can tell us just when those falls will occur.
So why do the predictions keep coming anyway? Most prediction peddlers have strong financial incentives for stirring up your trading tendencies. Their aim is accomplished by employing well-known money-making tricks (money-making for them, that is), straight out of what I call the “Fear Trumps Logic Playbook.”
Here are the “plays” to look for, at least as I’ve translated them.
Step One: Sound the alarms. Observe that markets are high and are about to crash. Offer just about any seemingly plausible justification: Interest rates are rising! There’s too much debt! The Fed chair sneezed! Bonus points for adding scary images like a frightened, screen-staring stock broker.
Step Two: Overlook reality. Ignore the reality that our markets actually move based on the interaction of countless factors. There’s no modeling how the market will actually respond to each unique combination of hundreds if not thousands of untold data points.
Step Three: Falsely claim you know what you’re talking about. Insist you precisely called previous market declines based on skill rather than luck. Do this by cherry-picking and showcasing your luckiest “smart” calls; conveniently gloss over your far more frequent misses.
Step Four: Offer to save the day (for the low, low price of …). Offer to help investors avoid the allegedly imminent crash that supposedly only you are aware of. Cha-ching. Money-making transaction fees find their way into your coffers.
Think I’m exaggerating? If you know where to look, you’ll see these sorts of plays taken every day. Don’t get taken yourself. Markets are risky, for sure. But your best course through the risks is to trump this scary playbook with a healthy dose of evidence-based logic.