In today’s Money Morning… most financial media outlets aren’t there to educate investors… rational greed is valuable… rational fear is valuable too… and more…
The ASX is on course to tack on more points today as the US market rally resumes.
As everyone and their dog (myself included) sounded off on a unique financial event, the underlying reasons for the rally remain the same.
The money printer’s power is phenomenal.
Until, of course, the concept of money changes.
But until that happens, you should takeaway these three lessons or tips for Investors from the GameStop short squeeze.
Here they are.
Lesson #1: Most financial media outlets aren’t there to educate investors
CNBC, Bloomberg, Reuters, choose your poison.
It’s a constant churn of narratives that last one day, two days tops.
The GameStop phenomenon revealed just how deficient these outlets are.
Remember, these big outlets are not there to educate your average investor.
Not that you can’t learn something from them.
It’s more that you need to read between the lines — when a big fundie gets on the camera and gives a supposedly well-reasoned view on a stock or the appropriate asset allocation for a portfolio, have a think.
I’m not saying there’s a cabal out there coordinating schemes via the media.
But there are always implicit motivations for the public pronouncements.
And even pockets of the media that market themselves as being in the corner of everyday investors frequently disappoint.
Case in point is Jim Cramer of Mad Money fame in the US.
Now if you haven’t watched Mad Money before you are certainly missing out on some serious entertainment.
The show starts with a little intro about how Jim Cramer is looking out for the little guy and brings Wall Street insights to Main Street.
But just watch this absolutely golden clip for a taste of how Cramer operates.
It’s an impassioned plea to Fed Chair Bernanke to save his Wall Street buddies from losing their jobs at the early stages of the GFC.
This is the same person who said there was nothing wrong with Bear Stearns before it all went down the drain.
Point is, financial media outlets should be there for picking up little diamonds in the dross, but definitely not to get a real insight into how to invest.
Lesson #2: Rational greed is valuable
The old quip ‘greedy when others are fearful and fearful when others are greedy,’ always has relevance.
In the constant greed/fear churn the key is to insert some reason into the process.
From the March market low, Money Morning writers have stressed the power of low rates and various central bank shenanigans.
Many retail investors have done well in this environment.
In hindsight, this looks like valuable and rational greed — despite the negative connotations the word greed carries with it.
Maybe call it a rational risk appetite increase instead.
But if you’ve done well you should also listen to the following…
Lesson #3: Rational fear is valuable too
The internal chatter within the business is starting to get increasingly bearish.
We have a whole range of editors with different ideas, even two algorithmic products that aim to take the ‘human’ out of the investment equation.
Each had their own take on the recent sell-off.
The key insight from the GameStop mini-panic might be that you need to harness the power of rational fear.
I’m not sure when the excesses of the rally will result in a correction, but at some point, the worm will turn.
If you’ve done well, consider taking some money out of the market if you think the market is looking a bit stretched.
GameStop and the Reddit forums that ignited its rise are symptomatic of a certain investment culture.
They frequently greet each other saying, ‘Sup gamblers’.
This is not a well-reasoned approach to investments.
Consider balancing your investment media diet with some rational fear as well.
When I mean fear, I’m talking about a rapid decay in the value of fiat, the potential for vaccines to lose their efficacy, and the prospect of a prolonged global economic slump.
My instinct would be to say, go long crypto and long medtech.
However, there’s a book that you’ll hear about in the coming weeks that makes a case for a ‘long COVID’.
It’s crucial to pay attention to if you are more geared towards wealth protection than say, gambling.
It’s written by a guy who has been around the traps far longer than most.
His name’s Jim Rickards and you’ll hear more about him soon.
For Money Morning
Lachlann is also the Editorial Analyst at Exponential Stock Investor, a stock tipping newsletter that hunts for promising small-cap stocks. For information on how to subscribe and see what Lachy’s telling subscribers right now, please click here.