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.

Wooden blocks spell "fact" and "fake."

Image Source: Getty Images.

Misinformation works because it's easy. All you have to do is read and believe. Studies show that no matter who you are, how smart you think you are, or what beliefs you hold, you're as likely to get duped as anyone else. 

Fighting misinformation is hard! It takes time and effort, both within your brain and out in the real world. You'll need to teach yourself ways to sift truth from lies, and then practice those skills to strengthen them and keep your guard up. So why should you bother to put in the time and effort? Probably for the same reasons that superinvestor Warren Buffett spends hours poring over company financial statements line by line:

  • It protects you from losing money. Making decisions based on bad information can cost you dearly.
  • It helps make you smarter than other investors. When you know things others don't, you can profit from that knowledge advantage.
  • It's the right thing to do. Stopping the spread of misinformation helps make markets more efficient, prevents others from painful losses, keeps bad actors from successfully exploiting less wary people, and benefits society as a whole.

If it helps, think of trust not as a switch that flips between "yes" and "no," but instead as a set of scales. You pile up evidence on each side of the scales, then see which way, and how far, they end up tilting. Sometimes you'll drop so much weight on the "no" side of the scale that you'll know for certain you shouldn't trust a particular piece of information. But more often, you'll have to make your own judgment about how much to trust what you see and hear, and proceed accordingly.

Here at The Motley Fool, we've donned our jingly thinking caps and put our heads together to create a list of Foolish best practices for avoiding misinformation online and in the stock market. Follow the links below to discover how you can strengthen your mental defenses and avoid getting duped.

  1. Stay skeptical.
  2. Ask, "Who benefits?"
  3. Look for the gray areas.
  4. Beware anyone telling you exactly what you want to hear.
  5. Don't trust appeals to emotion.
  6. Evaluate experts -- then listen to them.
  7. Avoid supposed shortcuts to success.