The market doesn’t like taking risks, let alone total drivel pretending to be news. It doesn’t mind you taking any range of risks with your money, but when it comes to big holdings, it’s not too popular at all.
But fake news can do real damage. Some of this fake news is scamming but a lot of it is malicious, misleading and basically misanthropic. Some news is also very highly spun to deliver the usual messages about great investment opportunities and the ever-present “tax loopholes”.
(Tax loopholes are a good basic example of fake news in its other role as general scam fodder. There is no such thing as a tax loophole, and never has been. Money is either taxable or not, and that’s it. The mere fact that someone says something is a loophole should be a very strong warning to avoid anything being sold by the promoter.)
Fake news can do real damage to stocks. The infamous Tesla car fire is one of the more commonly quoted examples. This fire wasn’t too serious, but it got major headlines. Tesla stock slipped, based on what was essentially a pretty simple case of internal combustion gone wrong.
Political spin also has negative market effects. The Twitter in Chief, Trump, often impacts the markets with vague, not to say downright weird, comments. The current Iranian mess in progress is expected to hit oil fairly hard.
The culture of fake news in the market
The traditional form of fake news in the market is specifically designed to sell stock. This can be secret information that only you and anyone able to click a page knows, for example. It can also be based on the implied genius of the reader, whose uncanny financial instincts get them to buy damn near any slop claiming to be a stock.
This stuff does a lot of damage to investors. Unreliable information, to put it much too politely, is bad information by definition. Some people make a living out of it. Ever seen those “silver is on the way up” things? Silver has a strange bandwidth of prices, but a single chart can show you how volatile it can be, too. Putting money into silver can be a good move, but it’s no Get Rich Quick market by any possible standards. Bitcoin, too, gets hyped regularly, and so do stocks.
“Gosh, (insert name of stock) is looking really strong. The price/earnings ratio seems low, too. The dividend is pretty good for the price. Recommended.”
You’ll see tips on the horse racing pages which are effectively the same thing. Old Glue must be a great horse, based on this vague, and truly unprofessional evaluation. No hard numbers are quoted, unless they can be made to look good, and fundamentals are never an issue. It’ll pay well if it ever wins anything, because it’s at 500/1. That’s pretty much the same thing as market fake news.
Talking down stocks is also pretty common. Not all news is fake, but fake news tends to bang the same drums, regularly, and hard.
Real market news vs fake news
News about stocks can get to the bizarre levels of General Electric, where the company is either in serious trouble or not, depending on who you believe. There IS an issue, the question is who’s right, and the big hit for investors and stock prices is based on the mix of who’s saying what. In this case, a highly respected analyst says GE is in trouble, and he’s not backing down. GE says there’s no issue at all. You can see that they can’t both be right.
The market perspective isn’t based on the obvious. The bottom line here is that GE is a high volume stock. It’s gone down from $30 in 2017 to $8 in 2019, and that’s a serious hit, down more than 75%. The market, however, is more interested in attracting investors than putting them off. So there’s a vested interest in “everything’s fine”. Total silence on such an important subject is a type of fake news, too, and it’s deadly to investors.
Meanwhile, fake market news has of course taken on a life of its own in the media. You really can’t search fake news in the market without getting pages of people telling you what’s fake and what isn’t. It’s a cluster and a half of disinformation and attempts to correct disinformation.
The market sages care about their credibility. Some have no ethics or actual talent, but they need to look good. It’s a safe move to call fake something your market sponsors don’t like, because you can quote them. If you go out on your own and call market information fake, however, and pretend to have a brain, you could be in real trouble.
The easy way to spot fake market news
The steps are pretty simple.
• See bit of information about a stock.
• Cross-check against hard numbers.
• Check price bandwidth.
• Check current company statements and cross check them.
• Check price/earnings ratios. The P/E rating doesn’t necessarily mean a damn thing, but a high ratio of price to earnings may mean the stock is highly overvalued.
• If you know how to do a stock price valuation, do it. The real value of a stock is the number of shares divided by net assets. It’s that simple, but you have to be able to believe the asset values, which may well come out of a cereal packet too.
• Real numbers look patchy, routine, and dull most of the time, nothing like a used car sales spiel.
• Atypical profits may have a lot of holes in them, notably asset sales and other one-offs.
Another surefire way to spot fake news about stocks is to check who’s spruiking them. Some market commentators are notorious shills for duds.
Someone who was all over Enron, World Comm, Madoff, etc. or their modern descendants is almost definitely 1000% fake. If it sounds like Get Rich Quick, it’s garbage, unless it’s an IPO and you already hold a few billion worth of stock. Strong profits based on maniacal accountancy, which make dud stocks look good, are also pretty easy to spot because the numbers are so inconsistent. You don’t “just happen” to make strong profits one year and confetti the year before, for example.
A totally uncritical commentary is also highly suspect. What, you’ve found a company with no issues, the very first in history? No company on Earth is that good.
Trust nothing. Check everything. If it looks good, minimise risk. Chuck in a few bucks and see what happens, but don’t go nuts. You’ll feel much better.
