Exchanges and regulators do their job in promoting customer awareness, but it does not harm anyone’s interest to be an aware customer
At a time when computers are doing most of the trading, even the smallest news which can disturb the market equilibrium can cause a domino effect on the stock or the market.
With the opening up of social media, every individual now has become a ‘journalist’. Random viewpoints are immediately circulated as genuine news. However, in a generation where information is in abundance, it is very important to get the information right.
In financial markets the damage is quantifiable. Prices react immediately to any information be it news or rumours. After all an old market adage is –buy the rumours and sell the news. Often, paid news or advertorials are promoted as genuine news. News are ‘leaked’ by sources only to be denied after price has reacted.
These ‘information’ are a problem for not only the retail investor but also institutional investors. It is a problem, not only in India but globally too. The only way to deal with it is to check and curb it the moment it raises its head.
Apart from news there are so called experts and analysts who are all over the media promoting some stock. While most might be genuine recommendations there are some who have vested interest in promoting stocks.
But how can a retail investor prevent himself from such news and expert opinions. The expert opinion part is easy to handle. As an investor or a trader one should always have their own opinion, do their own research and verify every fact. As someone said, its only when you find no use of your own opinion do you pass it on to others as expert opinion.
As for news, there are some telltale sign to which can inform you if it is genuine or not. The purpose of promoting a fake news is either to profit from it or to cause a disruption in order to bring the price down to be able to buy it at lower price.
It is easier and cheaper to increase intra-day volume in a stock, but taking delivery of the same is a much costlier affair. A genuine move in the stock should generally be backed by strong delivery data.
Similarly, one can check the fundamentals of the company to justify the news flow. If there is news that a company is expanding its capacity or looking for acquisition, it is best to check if the balance sheet permits such an activity.
A little awareness and logical thinking can kill such ‘fake news’ the moment they appear. Exchanges and regulators do their job in promoting customer awareness, but it does not harm anyone’s interest to be an aware customer.
The writer is executive director, Trade smart online
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