Last
weekend at a party, I met a rather interesting individual who declared that
‘the best things in life are free’. To buttress his view, he spoke about
investments, and questioned the need to engage an adviser (read pay a fee),
when one can get free advice from the media i.e. publications and television
channels. I’m unaware as to what drove his belief: experience or the lure of
‘free’. In any case, his views found several takers, and soon he was dishing
out ‘free advice’ on the best sources of investment advice.
To
be honest, this isn’t the first time I have heard such views being expressed. Many
investors are convinced that sourcing
and acting on investment advice from media can be financially rewarding.
But is that line of thinking prudent? Let’s find out.
Advice vs. Coverage
Any
adviser worth his salt will agree that investment advice should be focused on
the investor i.e. customised to his risk
appetite, investment horizon and goals. The key is to navigate the
investor’s portfolio through various events, and stay on course to achieve
predetermined goals.
Conversely,
the media typically focuses on current events and trends. The journalist/host will have a
perspective in place. Domain experts contribute to the perspective with quotes
and/or data. Having covered one event, the media moves on to the next.
Whether
or not the coverage is apt for every investor following it, is anyone’s
guess. Therein lies the fundamental
difference between investment advice and media coverage.
Go Where the Wind Blows
In
Feb 2016, when domestic equity markets crashed, stocks of public sector banks
were among the worst hit, reeling under burgeoning bad loans. Expectedly the
media coverage was negative, and most experts opined that the worst was far from
over.
Between
then and now, both bank stocks and equity markets have staged a smart recovery.
While fundamentally not much has changed, appreciating stock prices have
resulted in sections of the media putting a positive spin on PSU bank stocks
with experts stating “You can’t do away with SBI. If it’s not in our portfolio,
we are missing out on India’s economic growth…” and so on. To clarify, such instances
of rapidly changing positions are common
in media.
Is this a case of mala fide intent? Not at all. This is simply the nature of the beast; media covers events in a manner that will appeal to its audience. Investors
choosing to treat media coverage as investment advice, and acting on the same, only
have themselves to blame.
Should We Shoot The
Messenger?
Does
the solution lie in insulating oneself from media? I don’t think so. Media can be an excellent source of
information and updates. Following reputed channels and publications can
help stay abreast of events. That’s where investors must draw the line.
I’m
not suggesting that every investor must engage an adviser. There are several who
are conversant with the nuances of investing, and don’t need to engage an
expert.
As
for investors who need assistance, but have never paid for investment advice,
admittedly it can be a difficult threshold to cross. But there’s a need to weigh up the downside of a misguided
investment versus the cost of acquiring prudent and expert investment advice.
In any case, relying on media for investment advice seems like an imprudent
choice.
