Why Is Fake News So Harmful To Investors?

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  • 27 Jan 2023
Why is fake news so harmful to investors?

Amidst the ocean of current-day media sources, it takes no more than a few clicks to get any news to go viral. “Fake news” suddenly becomes the talk of the town. Fake news can rise from anywhere, ranging from politics to education and does not limit itself to any particular boundaries. It could be from politics to finance or from trade to foreign relations.

The rise of “Fake News.”

Every day, many freelancers and bloggers publish their writings on several websites. Not many of them are professional journalists, and therefore the articles are also not always authentic. It is not new to manipulate the media and move asset prices through the written word. It stands true in the very sense of the term, “Pen is mightier than the sword.”

Several statistics reveal that tireless talking by several analysts who predicted “great rotation” from bonds to stocks in the recent future was “fake.” In short, we can say that misinformation is unreliably sourced from various opinions, driven by opinions. Experts opine that investors will be greatly impacted even if you lower the stock market by one per cent through the purposeful manifestation of fake news with proper business mechanisms.

In the case of mainstream media, responsible authorities arrest the person(s) responsible for spreading fake news to take proper legal actions. However, under most circumstances, the responsible persons remain free and out of bounds from the legal authorities. In 2013, an AP Twitter hack revealed high-frequency trading systems designed by respective investment firms that gauged and affected the market trends. Although, with time, several techniques have evolved into weddings through unreliable news sources. However, these are not entirely foolproof and cannot always be equally effective.

Financial news can also be used in exclusive pump-and-dump schemes for popular penny stocks. In the United States, back in 2014, the investors noticed the special Cynk Technology that significantly impacted the stock market by enhancing the stock value by over 25000% without any revenue production or employee strength. (Source: Business Insider)

Top 5 ways to stay safe from fake news:

To stay safe, you need to check the authenticity of the news before taking any action. Here are five ways to check the authenticity of fake news:

  • Check the source of the news and the publisher. The source needs to be authentic and credible to believe in, such as news sites, government regulators, etc.
  • Check the date: More often than not, most fake news is old news rehashed for viewing.
  • Who else is reporting? If the news is big and you need to base your investment decisions on it, there must be multiple sources stating the same fact. So, look for all sources and trust only credible ones.
  • Use Google’s Fact Check Explorer: as there are more than 1 lakh reputed publishers who provide credible information.
  • Be critical: Do your research and put your critical hat on to judge the authenticity of the news!
  • Be fact aware: Do your own research about the company from the company's annual report, BSE filings, SEBI and government websites, RBI releases, etc.
  • Most seasoned investors can identify the right from the wrong and avoid falling prey to such fake news traps. Facebook and Google are developing their respective fake news indicators to benefit ordinary people. However, financial investors need something more advanced and sophisticated to guard them against such traps and save their lives and savings against such harm.
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