Why your best decisions are made offline
 

Prudential Investment Managers

Prudential Investment Managers

March 2018

Why your best decisions are made offline

Social media is a wonderful modern tool. It connects you with your friends, colleagues and associates, and helps you stay up-to-date with breaking news. Facebook and Instagram will tell you (and show you) when your cousin gets engaged, while Twitter and Snapchat will let you follow the daily musings and opinions of total strangers or celebrities. Yet with every follow and every like, you’re drawn deeper and deeper into an environment where the first time you hear of a major historical event is when Mike Tyson reacts to it on Twitter.

Reacting… or over-reacting?

According to Qwerty Digital research, social media is used at least once a day by over 40% of South Africans, mostly through mobile phones. The more time you spend on social media, the more you’re exposed to breaking news (some real, some fake) and the more you’re drawn to react to it. For investors, this can be a dangerous environment indeed.

As an investor you need to think long-term, even if you’re living (and retweeting) in a short-term world. It takes enormous discipline to read a news headline telling you, for example, that the Dow Jones had dropped or that the JSE All Share Index has had a great day, and not want to react immediately by adjusting your investment. The question you need to ask is whether that short-term dip or spike will have any long-term effects on the market.

This is where your financial adviser can guide you to make the best decisions. He or she will encourage you to avoid a knee-jerk reaction, take a long-term view and stay focused on your financial goals, rather than on a news story that will be forgotten (or disproven) in a just few days’ time.

Fake news, real problem?

Another curse of the social media age is the now-infamous phenomenon of ‘fake news’. For an investor who’s trying to predict the future of the markets (which we at Prudential discourage), it’s easy to make a poor decision based on misinformation… especially when it comes from a ‘trusted’ (by you at least) source like your best friend’s Facebook page. 

If you’re trying to make forecasts or outlooks based on faulty information and without the guidance of a level-headed financial adviser, your investments are going to be in all sorts of trouble. Learn to tell fake news from real news – and then use that as the basis of your conversation with your financial adviser. 

Start by establishing the facts behind the prediction and by avoiding the natural urge to cherry-pick the information that supports your personal views. If, for example, you’ve convinced yourself that cryptocurrencies are the next big thing, you’re unlikely to seek out or take heed of any online information that suggests otherwise. 

Then consider the source of the information and its motives. Remember that often bad news sells better and spreads faster than good news. If you’re feeling pessimistic about an investment or about a country, company or industry, you’re more likely to be pushed into a knee-jerk reaction when you read a negative report about it.

Finally, stop for a moment, put down your smartphone and step away from your computer. Now consider how your portfolio manager built your investment portfolio in the first place. Often, it will combine a range of investments, each with its own risk profile. If the news headlines tell you that you’ve temporarily taken a knock in one part of your investment, could it be that another part has quietly gained value while you were distracted?

While you’re tweeting or sharing that breaking news story on your social media channels, remember that you’re tweeting in a short-term world. As your financial adviser will remind you, however, you’re investing in a long-term world.

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