As rational human beings we love free things. But on further reflection it is seen that - many things come to us as free, but end up costing us a lot. An example is reading free news on news media. We are addicted to news these days. It is everywhere - TV, Internet, Newspapers and so on.
Day in day out loners read these news items and respond to them emotionally or in an exaggerated manner. Many of them end up acting on these items and then on average they lose money on the basis of this information.
The reason this happens is that most of us have a 'faulty' biased brain filled with bunch of information and heuristic rules. When we see a news item like -- XXX commodity down 50% from its all time peak, we think based on a rule that was taught in a class, may be by a manipulative asshole instructor, that when you have a 50% sale you should take it usually. This rule might be applicable for broad stock market index like S&P 500 where the risk of a sector permanently going down has been diminished, but it cannot be applied to a specific stock or a sector. Why? Because it could well be that this stock or sector is in a secular decline because of fundamental shift in technological usage or because of a change in consumer tastes. Would you have thought of investing in a typewriter ETF when they were down 50% from their peak? It may very well be that a particular sector/market is on a permanent decline because of the newer technology replacing it.
Many people got burnt looking for a 'sale' in the sector investing. They bought OIL ETFs in 2015 when news media was filled with news of oil prices getting whacked.
There are many such examples of news media and wall street mouthpieces selling 'excitement' to the public. Once when I was booking a room outside a hotel lobby, the place was filled with people going to watch a football game in a nearby stadium. I remember commenting to the attendant that the crowds going to the stadium look really happy. He said, "They look much more happier going then when coming back from the event."
I guess once the excitement of the expectation passes away we become more sober in our assessment of the reality.
Day in day out loners read these news items and respond to them emotionally or in an exaggerated manner. Many of them end up acting on these items and then on average they lose money on the basis of this information.
The reason this happens is that most of us have a 'faulty' biased brain filled with bunch of information and heuristic rules. When we see a news item like -- XXX commodity down 50% from its all time peak, we think based on a rule that was taught in a class, may be by a manipulative asshole instructor, that when you have a 50% sale you should take it usually. This rule might be applicable for broad stock market index like S&P 500 where the risk of a sector permanently going down has been diminished, but it cannot be applied to a specific stock or a sector. Why? Because it could well be that this stock or sector is in a secular decline because of fundamental shift in technological usage or because of a change in consumer tastes. Would you have thought of investing in a typewriter ETF when they were down 50% from their peak? It may very well be that a particular sector/market is on a permanent decline because of the newer technology replacing it.
Many people got burnt looking for a 'sale' in the sector investing. They bought OIL ETFs in 2015 when news media was filled with news of oil prices getting whacked.
There are many such examples of news media and wall street mouthpieces selling 'excitement' to the public. Once when I was booking a room outside a hotel lobby, the place was filled with people going to watch a football game in a nearby stadium. I remember commenting to the attendant that the crowds going to the stadium look really happy. He said, "They look much more happier going then when coming back from the event."
I guess once the excitement of the expectation passes away we become more sober in our assessment of the reality.
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