The Influence of Media on Investments

Investment 101

Published: April 6, 2022

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The rise of new media has had a significant impact on every aspect of our society, including the way people invest. In the past, people would invest in stocks and other traditional forms of investment. 

However, with the advent of social media and the internet, people are now investing in things like cryptocurrencies and blockchain technology. This is because the media has made it easier for people to connect and share information about said investments. 

This has led to a new era of investment, where the media has had a larger impact on an investor’s decision-making process, which has affected the market trends in several impactful ways. 

Headline Risk 

One of the most notable ways that media has impacted investment is through what is known as headline risk. This phenomenon occurs when a negative news story about a certain company or industry causes investors to sell their stocks, even if the story doesn’t have any real impact on the company’s bottom line. 

These days, it’s very easy for a negative story to go viral on social media, and this can have a significant impact on the stock prices of the companies involved. For example, when Tesla CEO Elon Musk tweeted that he was going to take the company private at $420 a share, the stock prices of Tesla immediately skyrocketed. 

However, when the SEC started an investigation of Musk for potential securities fraud, the stock price of Tesla plummeted. This is because the market was worried that Musk may have been misleading investors with his tweet, which led to plenty of people selling their Tesla stock and losing investors’ money in the process.  

This is just one example of how the media can cause a company’s stock price to fluctuate based on headlines. In general, it’s become increasingly difficult to invest in stocks without being influenced by the headlines. 

Emotional Data   

Another way that the media has impacted investment is through emotional data. Emotional data is information taken from social media that can be used to predict how a particular financial asset will perform. 

Emotional data can therefore help investors analyze public sentiment about a particular stock or company. For example, according to Stockpulse, in 2020 there was a meltdown in mid-March due to the outbreak of COVID-19. At this time, Stockpulse’s emotional analytics showed a high level of fear in social media posts about the market in general. 

This information can be extremely useful for investors because it can help them make more informed decisions about when to buy or sell a particular stock. 

It should be noted that emotional data is not always accurate, and it should be used in conjunction with other forms of analysis. However, it can still be a valuable tool for investors who want to get an edge on the market. 

Access to Information 

Increased access to information has had a significant impact on the market. In the past, it was very difficult for small investors to invest in local and foreign stocks since they did not have access to the same information as larger companies. 

With access to the internet, an investor can easily find a company’s information, including its financial reports and earnings through the Securities and Exchange Commission (SEC). This has made it easier for small investors to make informed decisions about where to invest their money. 

In addition, technology has also made it easier for people to get involved in the stock market. Since the general public can now use trading apps, anyone can buy and sell stocks without having to go through a stockbroker. 

Social Trading 

Social trading is a new phenomenon that has emerged in recent years. Social trading allows investors to connect with and share information about the stocks they are buying and selling. 

This can be extremely useful for investors because it allows them to get real-time information about what other investors are doing in the market. 

These trading platforms also allow investors to “mirror trade” or “copy trade” other successful finance professionals. Which can help individuals make money even if they do not have a lot of experience. 

Social Trading Platforms

There are a few different social trading platforms that have emerged in recent years. The most popular ones are: 

  • eToro: is a social trading and investment platform that allows users to trade a variety of assets, including stocks, foreign exchange, and cryptocurrencies. 
  • ZuluTrade: is a social and copy trading platform that allows investors to mirror the trades of other successful traders. 
  • Public: is a social trading platform that allows users to share information about the stocks they are buying and selling. 

Herd Mentality 

In the past, when people wanted to invest in a company, they would look at information like the company’s financial statements and research its products. 

Nowadays people are just as likely to invest in a company because they saw it trending on social media. This is due to what is known as the herd mentality — people tend to make investment decisions based on what other investors are doing, rather than doing their research. 

This can lead to people making poor investment decisions, as they’re not looking at the underlying fundamentals of the company. For example, during the 2017 Bitcoin Bubble, a lot of people were investing in Bitcoin simply because everyone was talking about it and they wanted to be a part of the trend. 

However, when the bubble finally burst, many people lost money because they didn’t understand their investment. If they had done their research and invested based on fundamentals, rather than following the herd, they may have been better off. 

How to Avoid Herd Investing 

With most social media today thriving on a democratized format, anyone can publish misleading information about stocks, which can often be a source of confusion. As a result, it’s important to be careful about who you listen to when it comes to investments. Here are a few tips on how to avoid herd investing: 

Conduct Thorough Research

Following media trends can be tempting, but it’s important to remember that not all trends will result in profits. So before you invest, make sure you do your research and understand what assets to invest in

This involves looking at things like the company’s financial statements, price-earnings ratio, and what the industry is. You should also be aware of any risks involved in investing, such as the potential for fraud and the volatility of markets. 

When you prepare a thorough investigation, it will lead to less emotional and impulsive decisions. 

Opt for Stable Investments

It can be tempting to shoot for larger profits that you may have seen on social media like penny stocks or cryptocurrencies, but it’s important to remember that these investments may be riskier. 

Instead, invest in more stable investments, and diversify your portfolio by investing in a variety of tangible assets. This will help to mitigate any losses you may experience in one particular area. 

A few examples of stable investments, include Gold IRA, Silver IRA, or index funds, which will give you a more predictable return. These types of investments may not make you rich quickly, but they can provide you with a more steady stream of income that will be beneficial in the long run. 

Manage Expectations 

Investing comes with risks, and there’s no guarantee that you will always make money. So it’s important to manage your expectations and only invest what you can afford to lose. This way, even if the investment doesn’t perform as well as you had hoped, you won’t be left in a difficult financial situation.

A few ways to manage your expectations include setting a budget for your investments, having a plan for what you will do if the investment goes down in value, and diversifying your portfolio. 

By following these tips, you can avoid making impulsive investment decisions based on media trends. Instead, you will be able to make informed and rational decisions that will help you reach your financial goals.

Investment 101

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