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Posted October 8, 2018 by MoneyLink

Investors and Truth Decay

Experienced investors know it is important to differentiate between serious, valid information and noise.

Valid information is important and may affect our investment decisions. Noise is more alarming, not so factual, and should be ignored.

Information versus noise

Serious information is the report from the US Federal Reserve or the Reserve Bank of Australia, the official statistics on consumer spending, unemployment and inflation, and the opinions of experienced and highly regarded economists.

Noise is the headline in the Daily Astonisher, or on tabloid television, or on social media. It is the click-bait that websites use to try to attract us to their pages and advertisements. “Financial collapse imminent” it often says.

Noise is becoming more prolific. In the digital age there are more media channels with more commentators writing more opinionated pieces, all trying to attract our attention. The more alarming or sensational, the less likely they are true.

‘Truth decay’

We now also have what is known as “truth decay” (not a dental term). The term was devised by RAND Corporation, a non-profit, non-political US organisation that aims to improve government decision making through research and analysis.

It says truth decay is blurring between fact and opinion, opinion being respected over fact, and declining trust in traditional sources of truth such as government reports and quality newspapers. It is evident in more people refusing to accept facts.

Examples of truth decay include more parents refusing to vaccinate their children despite medical evidence it is beneficial, claims that crime is increasing when it is decreasing, and lack of respect for any scientific evidence around global warming.

More biased media outlets means more opportunities to listen only to opinions that reinforce those already held and avoid exposure to the opposite. Social media allows people to converse only with others holding similar views.

Advertisers and social media are becoming efficient at working out our likes and interests and targeting us with matching stories and products. We can become trapped in an echo chamber recycling a narrow set of views.

How to tell the difference

AMP Chief Economist Shane Oliver wrote about this recently. He has several tips to help investors separate important information from noise, and avoid truth decay.

He says put the latest worry in context to past worries that didn’t eventuate, stick to factual information sources, understand how markets work and that shares must earn higher returns long term, don’t check your investments too often, and look for buying opportunities that alarming headlines create.

This is general advice and should not be treated as personal advice. Russell Tym is an authorised representative of MoneyLink Financial Planning Pty Ltd ASFL No: 247360.

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