On Wall Street, information is power. Investors increase their potential to profit by knowing more than the person on the other side of each transaction. But some unscrupulous folks don't stop at simply gathering better intelligence. They aim to cash in by spreading lies that mislead and misdirect ordinary investors like you -- making themselves rich at your expense. With persistence and a little know-how, you can protect yourself, your friends and family, and your money from making these kinds of costly mistakes.
"It is reason, and not passion, which must guide our deliberations, guide our debate, and guide our decision."
-- Congresswoman Barbara Jordan, speaking at the opening of the House Judiciary Committee's hearings on the impeachment of President Richard Nixon, 1974.
Disgust keeps us alive. Since our cave-person days, we humans have been hardwired for strong negative reactions to things that might poison, sicken, or kill us. But some forms of misinformation can exploit this necessary survival skill to short-circuit our ability to think critically about important issues. Disgust or other strong emotions can make us stop thinking and start feeling -- and lead us into the very trouble our brains are trying to avoid.
When you read any piece of information, pay attention to the words it uses, and the emotions those words instill.
- Is the business pursuing misleading practices, or is it pulling off a disgusting, disgraceful scam?
- Does it show considerable promise, or is it an amazing superstar destined for spectacular returns?
Whether they're positive or negative, emotionally charged words can often lead us astray. If they show up in something you're reading, slow down, put your skeptic shields up, and start paying closer attention.
No one needs strong, emotionally charged words to make an argument. The right facts can speak for themselves. If a company's being poorly run, then simply describing its years of widening losses, its shrinking margins, its frequent and unsuccessful shifts in strategy, and its low ratings from unhappy employees will make the exact same point as calling it a rotting wreck that's headed for disaster.
Facts shouldn't tell you how to feel. Any fair and honest argument will trust you to make those judgments for yourself. Emotions can't help you make sound decisions -- about investing or anything else. Watch out for any argument that relies exclusively, or even heavily, on emotional language to make its case. That's especially true if that argument aims solely to make you feel something, and even moreso if it wants to make you feel either pride in something you like, or anger or revulsion at something you don't.
How easy targets can lead you astray
Misinformation often uses appeals to emotion to focus your anger on a particular person, group, or entity. Throughout history, demagogues of all stripes have used scapegoats to manipulate people for their own gain. Beware of convenient enemies. If anyone or anything tells you that the source of all your problems lies in one particular place, and that removing that obstacle will solve everything, proceed with extreme caution.
In 2021, message-board agitators riled up anger against wealthy hedge funds that treat the market like a casino. These funds often place short-selling bets that a particular company will fail (and issue research reports designed to make that outcome more likely).
Those message-board critiques had merit! But by urging investors to make their disgust personal -- to take those hedge funds down a peg, or destroy them entirely -- the leaders of these efforts got hundreds of ordinary people to risk their savings just to drive up the prices of legitimately risky stocks.
Prices for companies like GameStop -- a struggling used-and-new video game retailer whose business model faced very real threats from the COVID-19 pandemic and the larger video game industry's shift away from physical media toward digital delivery -- soared.
A handful of people egging on this movement used that price jump to make a short-term killing, while leaving all their followers' money in long-term peril -- all by focusing people's anger on a particular enemy whose destruction would supposedly improve their lives.