We have written before about the danger of believing everything you read. Worldwide, but especially in South Africa, the media love to sensationalise bad news; so it is important to distinguish between actual news and blatant sensationalism intended to trigger your emotions.
Last week, for example, the story about a motorist being arrested for calling a traffic officer the “k” word was front page news in the Cape Times, when judged on real newsworthiness it should not even have made the back page. Similarly, we were subjected to the (factually incorrect!) story about the Springboks being racist in their “bomb squad”. We are also constantly bombarded with countless gruesome stories about rape, murder and pillage; not to mention the political pieces cleverly written in ways to drive a wedge between black and white in South Africa. Our newspapers have become tabloids; you would do well to read them with the utmost caution.
The problem with this tabloid journalism is that it also triggers emotional decision-making when it comes to investments. Take, for example, the Resources sector. We all know that the demand for mining products is cyclical. There will be a period during which demand for, say, copper is high and mining companies will invest in new mines and produce more copper. Then, after a few years, the demand drops and the excess supply drives prices down. And the process is repeated ad infinitum.
But when prices start going down, the media write articles stating “the world is going into a permanent recession, never to recover” and you sell your Anglo American shares at rock bottom prices in a panic. At the same time investors start looking for alternative investments like Bitcoin, or even marijuana companies. This is usually also the time when the media write fantastically positive articles about these alternatives and drive prices up to insane valuations, just for you to invest at the top.
Bitcoin, for example, started 2019 at $3 692 after falling from $19 000. It went up to $12 561 in July and fell back to $8 232 today. Marijuana companies also had a wild ride (see graph below). It is natural for us to make investment decisions based on how we feel, and that is why we have to be careful about things that trigger our emotions. Usually the safest way to invest is to tell yourself that only 50% of what you think is the right thing to do, is actually right; and then to buy some “insurance” by diversifying.