In 1928 in New York City, or so the story goes, John D. Rockefeller was having his shoes shined. The shoe shine boy, presumably not knowing who Rockefeller was, started giving him stock tips. J.D. took his shoe shine boy’s advice – but not in the way you’d expect.
He decided that if a shoe shine boy – making a penny a shine – was giving stock tips – it was time to get out of the market. He did – and it’s the reason his family was able to stave off the Depression, and continued to be one of the richest in our history.
Who is your equivalent shoe shine boy? Is he the taxi driver? Is he your colleague who has shown sudden interest in stocks like never before?
The first tip is about increasing your street smarts by surveying the sentiments of the people around you. When many people are optimistic about investing in stocks, it is probably time to get out.
Whether it is newspapers, mainstream financial websites or TV, the media’s primarily goal is to capture the audience’s attention and create excitement. This is why if you follow the media long enough, you will realize that they tend to exaggerate and take things out of context.
The markets don’t drop or rise 1%, they “plunge” or “drop sharply” or “soar”, helping to create fear or greed in the process. By the time you receive the information from the media, it is OLD news already.
Listening and reacting on the advice from the media is a recipe for disaster. It will definitely throw you off from your initial investing strategy. For example, because of a “bad news” from the media, you sold away your stocks in fear when the fundamentals are still intact. You need to have your own independent views and should not let the media affects your emotions