OUR ISAs, pensions and investments can be a little hidden in turbulent markets, but understanding this and how it can benefit creates opportunity. It also creates an opportunity for investors to lose significant returns on their investments with instinctive exit reactions.
A few months ago I showed a series of very positive market headlines (which would have sucked investors in) that were followed by big losses, and a series of negative headlines that were immediately followed by big gains. There is significant noise, and seeing through the noiseless data without emotion with investments is paramount.
You might also remember that there are also “pump and dump” programs that make headlines. Pump and dump is when an organization deliberately moves a market up or down, then sells or buys it above its value (sell) or below its value (buy) .
In 2019, Morgan Stanley was fined €20 million for pump and dump tactics, and lately there have been numerous pump and dump strategies in the virtually unregulated industry. of cryptocurrency.
These scams brought in over $2.8 billion worth of crypto in 2021. The person looking to sell the asset is using multiple social media platforms and “pretty girl avatars” to “inflate” prices, by relying on your “fear of missing out” (FOMO) and presto, as the price rises, they quietly exit the market with a sizable gain. Squid Coin is believed to have made creators the simplest $3 million they could have imagined.
Emotions can run high with FOMO, and the reaction inside the brain is well known to those who want your loss to be their gain. For every winner there is a loser and vice versa.
In any state of high arousal (fear or excitement), the brain’s ability to think logically decreases dramatically and the mind becomes very binary: vote blue or red; Brexit or stay; mask or anti-mask – you get the drift. This strategy is also very well known and strategic for those who wish to separate you from your hard earned money, and the most remarkable thing is that when we are excited, we are very impressionable.
People are often anxious: worried about paying a bill, feeding their family, unhappy with their relationships, overworked. It’s hard to meet your emotional needs when so many cogs are rusty or not working. When our emotional needs are not met in the right way, psychologically we may try to meet them in other ways, some of which may be unhealthy.
“If only I won the Euromillions, I would be great”.
And this is where the emotion comes in. Excessive excitement makes your investment in a product (Euromillions) with 139,838,160 chances of winning a reasonable product. In reality Monday you won’t be hitting overtime on the head and back at the £2 lighter grind.
Currently, the Securities and Exchange Commission has issued subpoenas to a series of prominent company names in the United States regarding block trading abuse and we will wait to see the outcome of this.
In September 2021, Jay Powell ordered a review of the Federal Reserve’s ethics rules after concerns about trading at the Fed. Some officials criticized for securities trading have resigned.
In January 2022, the Vice Chairman of the Federal Reserve resigned (the third in as many months) following revelations about his stock trading at the start of the coronavirus pandemic. Markets had fallen with the coronavirus chaos, but the vice president shifted capital into stocks, just before the Fed announced it was ready to step in and provide economic support.
As a psychologist friend once told me, “Stop trying to let the world know your views on fairness. Accept that it’s not fair and navigate it”.
This is indeed true, so do the right thing with all financial decisions and simply lead them through a cool head like your independent financial adviser, lawyer or accountant.
Breathe, breathe again and take your time. This investment will turn out to be one of the best you will ever make.
:: Peter McGahan is managing director of independent financial adviser Worldwide Financial Planning, which is authorized and regulated by the Financial Conduct Authority. If you have a financial question, call Darren McKeever on 028 6863 2692, email firstname.lastname@example.org or visit www.wwfp.net.