Market Maven Predicts Next Stock Market Crash, Click Here…Nooo!

Transcript

Have you ever clicked on an article or read an email with a headline such as:

• “Huge Market Crash Coming as Credit Bubble Set to Burst”
• What about, “When the Government says, ‘Don’t Worry’, Then It’s Time to Panic”
• Or, “Stock Trader Who Predicted Last Crash Has New Warning”
• And of course, “Buy These 5 Stocks Now Before It’s Too Late”

Boy oh boy, did these articles drive me nuts when I was a financial advisor. You could always count on an entertaining phone call after a client got sucked into the black hole these headlines can take you down. It never ceases to amaze me how many people read this stuff as though it’s written by someone they think is trying to help them. Come on people, you have to realize these are “clickbait” headlines, designed to try and sell you something that benefits them—at your expense—and this episode will give you a firsthand account of what actually happens when you click on one of those headlines. 

Welcome to the first season of Invested Poorly: Sad Tales of FInancial Fails, a short-form podcast designed to help everyday investors make wiser investment decisions by learning what NOT to do with their money. Host Jeff Harrell shares timeless stories from his former life as a financial advisor, about the poor—and irrational—choices he witnessed investors make that disrupted their journey to financial independence, or FI. Your ability to recognize, and avoid, similar mistakes could make all the difference for you along your path to reach FI.

Check out the “Introduction” episode for more background on Jeff, why he created this podcast, and how it can guide you to becoming the hero of your own investing story. Now, on with show.

This episode hits pretty close to home for me because I have a couple family members who routinely ask me about some of these crazy headlines. My response almost always begins with a deep sigh, I usually roll my eyes in bewilderment, I then follow that up with a back and forth shake of the head, and I finally climax with an expression that goes something like, “would you stop listening to that garbage!!”

While I totally understand that human nature makes it difficult for many of us to ignore some of these headlines, what you really need to remind yourself, is the people who write this stuff know that fear and greed are the two biggest motivators to get people to take action. I have more stories than I can count related to this, but one in particular speaks volumes as to what you can expect if you ever decide to venture down this path.

A client called me up after reading one of these doomsday headlines, just to get my take. I gave him the same spiel I always did, telling him they are just trying to get you riled up so you will buy whatever they are selling. Although he seemed to agree with me, he told me he was going to go ahead and download the report they were offering. I remember asking him to keep me posted with what happened because I was interested and curious to see what he would find.

A couple weeks later, I get a call back from him. He starts off giggling and just says, you were right. So I asked, what happened?  As I remember it, he mentioned signing up for a newsletter, which led to a countless number of emails peddling more things he could buy that were related to the doomsday outlook headline he originally clicked on. He even received a phone call from someone trying to convince him to transfer his accounts and invest in things that were a “surefire way” to profit from the impending economic collapse. He admitted that he could tell he started getting more junk emails and robocalls after signing up for the newsletter.

This turned into a running joke over the years every time we spoke. He would routinely give me some of the new doomsday predictions he was receiving, and we’d always have a good laugh. I think he ended up using these as a form of entertainment, because no matter how hard he tried, he couldn’t get off the email lists. So, the moral of the story is, unless you want to blow up your spam filter or see how good your cell phone is at screening robocalls, think twice before clicking on one of these headlines.

Another story I have that falls along these same lines happened early in my career. I remember receiving an email at work that was addressed to somebody else and it was allegedly coming from the intended recipient’s financial advisor. It was a very short message that stressed how important it was to give him a call because the stock they had been talking about, which he named in the email, was about to explode, and he wanted to make sure this person got in on it.

I couldn’t resist but look up the stock, which was a small penny stock that traded with almost no volume. This means very few transactions took place on an average day. However, within a couple days I started seeing the volume pick up steadily until, maybe a week or so later, there was a huge spike and the stock shot up something like 500%. I can’t remember exactly how crazy the move was, but it was huge. The number of shares traded that day was like 1,000 times the normal volume, something ridiculous.

So, what do you think happened? Was the email I received from a financial advisor who really knew something big was about to happen? ...Nope. The next day, the stock completely cratered back below where it was trading at before I had ever started watching it. I kept following it for the next couple of days and pretty much nothing happened after that. So, do you see what happened here? It’s similar to the story of what happened more recently with GameStop, which I talk about in episode 12, only this occurred well before investment-related message boards were as heavily followed as they are today. 

Clearly, somebody sent the same email I received to as many email addresses as he could acquire, and then just sat back and waited to see if anyone took the bait. I’m sure whoever sent the email already owned the stock and when someone tried to buy a large number of shares, it pushed the stock price up substantially. I have no doubt the person who sent the phishing email was more than happy to sell his shares, make a nice profit, and then move on to his next victim.

Never forget that fear and greed sell, and they sell well, especially when it comes to investing. There will always be things to worry about, as well as things to be optimistic about, when it comes to the stock market. So, I hope you remember these stories the next time you’re tempted to make an emotional investment decision based on a market headline.

I sure hope you enjoyed this episode of Invested Poorly and will be able to take something from it to improve your decision making as you navigate the twists and turns of your personal investing adventure. Be sure to check out my website at AreYouFI.com (that’s A R E Y O U F I dot com) where you can find resources and show notes with the charts and graphs I mention during the episodes. These are like little treasure maps that can help you choose more wisely along your quest to reach FI, or financial independence.

Never forget, in the short-term the stock market is unpredictable, and as my mischievous little nephew likes to say, “things just happen”! So focus on the long-term, by controlling your emotions, simplify your investments, and always… ignore the noise.

I’m your host, Jeff Harrell.  Thanks for listening.

Invested Poorly: Sad Tales of FInancial Fails was created for informational purposes only and should not be relied on for specific tax, legal, or investment advice. You should consider consulting a qualified professional to review your situation before engaging in any transactions. Investing involves risk, including loss of principal and past performance is no guarantee of future results. 

This podcast was produced by Ted Cragg. Learn more about creating podcast mini-series like this by visiting QuickEditPodcasts.com.