Let’s face it, we live in a soundbite world, where time evaporates, patience is limited, and acronyms and emojis replace the spoken tongue. We crave the easiest path to information, opportunities, and to dopamine hits associated with investment success. We crave the fast fixes of TLDRs (too long didn’t read) and suffer the interminable impatience of Zoomers – where yesterday is already too late, and grinding your way to success is just a legacy of the boomer generation. As a result, for investment purposes, it is all too easy to listen to and to be drawn in by, the opinions of others.
The influencer model is now so firmly entrenched within our psyche and our social media feeds, it has changed the way we view and process information. Influencers satisfy our thirst for immediate knowledge and have the power to shape opinion. The challenge is the influencer model tends to draw a cult of personality, which can tend to drive investment emotion-based decisions and not rational thought.
It’s all too easy to get drawn in by FOMO (the fear of missing out) when influencers and peers tell you to buy something and on the flip side to getting caught up in the FUD (Fear, Uncertainty and Doubt). In the world of soundbites and acronyms, there is only one acronym that stands out beyond all others, and one we should always follow – DYOR (Do Your Own Research)
Investment is About Risk Management, not Gambling
Successful Investors follow the two golden rules of investment:
- Rule #1 – Don’t lose money
- Rule #2 – Always Follow rule #1
Without doing your own research, it is impossible to understand the true risks you are entering into. The world is already complex enough as it is, with the ever-expanding rise in digitization creating so much unnecessary noise based on click-bait. We need high-signal-to-noise ratios to pick out both risks and opportunities.
At some stage in our investment careers, we have all made a decision to invest quickly based on hype. If you look back at those decisions coldly and clinically through the lens of emotionless investing, how many times have you felt frustrated at your decision? Acting in haste and repenting at your leisure is an age-old cliché for a reason.
Investing without doing your own research is just like going to the casino, where blind luck shapes your decisions. Yes, it means spending time to make informed decisions based on knowledge, data and insight, and not hype. It doesn’t always mean you will always back a winner but it will certainly decrease your chances of backing a loser.
DYOR – No one Knows Your Risk Appetite Better than you
Only you can judge your risk tolerance. Certain asset classes are much riskier than others – eg equity in a startup is far riskier than say an AAA-rated government bond. You may feel comfortable with startup equity if you:
- know and recognize the founding team as being of high quality,
- understand the market and its highly competitive nature and
- the risks associated with ever-changing technology
Doing your research increases your chances of finding those elusive higher returns (the alpha). Even when you find no alpha – that result is positive because you are one step closer to saying no.
In essence, doing your own research is like wearing a safety belt when riding the risk/reward rollercoaster.
DYOR – understand what you are buying
Warren Buffet regularly reiterates one of his core investment mantras. He only invests in things he understands. This is so true – be that a stock, a cryptocurrency token or a government bond. Without understanding an asset and how it performs within its own market you cannot hope to understand the risks that may affect whether the asset price rises or falls. This is especially true in technology.
For example, within the cryptocurrency space, there are 9,436 cryptocurrency tokens available to trade at the time of writing. Each cryptocurrency token will have its own uniqueness and nuances. In order to be able to identify the true value of a token you have to assess its individual nuances, its strengths and weaknesses. Without this understanding, you are investing blindly.
Equally, there have been many scams where a great-looking website showcases the token’s benefits, the team and why you should support the project. It is up to you to ask questions – of yourself and others. You can validate such things as:
- the token’s value proposition – can the technology do what the promoters say it can do?
- does the team have the expertise to deliver on their beautifully crafted roadmap?
- which peers are the strongest in the same market segment?
- how future-proof is the technology
The Influencer Model is Flawed for Investors
The recent high-profile case of Kim Kardashian’s $1.26m settlement with the Securities and Exchange Commission (SEC) for allegedly promoting a crypto asset in an Instagram post without disclosing she was paid to do so, highlights serious flaws in the influencer model – especially for investment products.
It can beg the question – are the influencer’s positive views influenced by their remuneration and or their own true opinions.
So, approach any investing with skepticism and don’t just take the word of the latest influencers to grace your Youtube screen.
In summary, don’t trust, validate – by doing your own research.
