The financial markets are inscrutable creatures. They don’t just react to the macroeconomic indicators, but to the overall mood of the investor base. While fundamental analysis and expert opinions undoubtedly play a role, I've observed firsthand how the media, particularly in its modern, hyper-connected form, wields an outsized influence on market behavior, often triggering irrational panic selling.
A separate but related concern is media fearmongering I distinctly recall in 2008 watching the market collapse and consumption of cash. Now, every news outlet had their front page splashed with the market’s collapse. I’ll never forget how that steady drumbeat of bad headline after bad headline made it all feel so terrifying. It looked like folks were liquidating their investments at a loss merely to stop the bleeding on further possible losses.
In this digital-first era, the pace of misinformation and its ability to spread are faster than ever. We have seen in recent months how social media platforms, particularly X and Reddit, have turned into powerful engines of market narrative. While these platforms can democratize access to information and foster valuable discussions, they amplify biases and spread misinformation with alarming speed.
Investment decisions based on emotions Retail investors often let their emotions drive their investment decisions. They tend to overreact to negative user generated content on Reddit to a greater extent than positive analyst buy recommendations.
The combination of confirmation bias and echo chambers has fueled some of the most extreme financial trends in recent years. Investors tend to seek out information that confirms their existing beliefs, leading them to congregate in online communities where those beliefs are reinforced. Together, this presents a deadly feedback loop. Dissenting views are quickly beaten down, but the opposite—whether it’s irrational exuberance or panic—can sweep in oh so easily. Platforms like X and Reddit can offer valuable insights, yet they distort an investor’s perception of financial realities, creating significant risk to their financial well-being. In WSB favourites, the attention reduces HPRs almost immediately to nadir levels. It increases risk across the board as investors pile into momentum stocks and build larger positions.
I’ve watched the fantasy play out over and over again every time a fearmongering article goes viral and causes a panic dump. One bad press release and you can send the stock into a free fall. Social media makes this worse, even when the fundamentals are good. Nothing motivates action as fear, that’s the kicker. Investors care more about losses, they care more about not losing money than they do about making money.
Even with widespread dedication to objectivity, traditional media — including the local papers and broadcasters in South Carolina — are susceptible to the demands of the 24/7 news cycle. Beyond helping you capture audience attention, it’s much more than that. Sometimes, it’s a misplaced focus on negative news that pushes journalists toward sensationalizing breaking events. Traditional media is further bankrupted by the fact that it is dependent on ad revenue. In sharp reversal, digital platforms succeed because they capture audience attention far better than old media’s linear approach.
The shift in viewership from television to platforms like YouTube, TikTok, and Instagram highlights the growing demand for personalized, on-demand content, which can impact public perception of economic stability. Digital marketing takes down those barriers and rural communities are able to compete on a much bigger scale. It delivers an even better ROI by being more cost-effective, reaching a wider audience, and tracking results in real-time for economic developers. Radical new digital business models have displaced incumbents and transformed categories at an astonishing rate. They foster new industries and markets, and they upend old ones. Rapid growth in mobile devices accelerates the need for industry to adopt digital business methods. This change moves toward improving public access to information and has the potential to affect perceptions of economic stability.
As an example, during the initial stages of the COVID-19 pandemic, the media relentlessly focused on the potential for economic collapse. Even before the pandemic, we were under a constant threat. Simultaneously, the 24/7 onslaught of dreadful news reports triggered panic selling and exacerbated the overall market decline. Investors that sold at the bottom out of fear lost on the recovery that followed.
Here are some of the strategies I’ve found to be most helpful over the years.
For one, it’s important to develop a healthy skepticism for reports coming out of the media. Take everything you read and hear with a grain of salt. Instead, look for a variety of information and examine the evidence with a skeptical eye. Always scan for bias and examine the purpose. So who made this?
Second, think long-term. And remember, investing is a marathon, not a sprint. Avoid allowing short-term changes in the market to distract from your long-term financial objectives. Market corrections are an inevitable feature of any full investment cycle. They typically produce openings to purchase distressed assets.
Third, create a diversified investment portfolio to minimize risk. One of the most basic principles of risk management is diversification, which means spreading your investments across various asset classes and sectors. This can go a long way toward softening the blow of market ups and downs and decreasing the lure of panic selling.
Fourth, if often makes sense to rebalance a portfolio to keep an overall asset allocation in line with targets. Further, implement tax-loss harvesting to offset losses, but understand the IRS’ wash-sale rule which can create challenges. Second, consider placing a stop-loss order to minimize your downside exposure if there’s a sharp pullback.
Don’t lose sight of your long-term financial priorities, even when there’s an emergency. So don’t be tempted to make investment decisions based on temporary market ups and downs.
As a final word, never underestimate the power that the media has to affect public opinion. When it represents a negative future outlook, it almost always results in panic selling. For investors, cultivating a healthy skepticism is paramount. When investors think long term and build a broadly diversified portfolio, they insulate themselves from the emotional impulses that create much of the market’s short-term noise. When it comes down to it, it’s not reacting out of fear that leads to long-term investment success—it’s making informed decisions. As OverTraders.com, we aim to equip you with the tools and knowledge necessary to navigate the complexities of modern markets.
