Overview – It Never Hurts to Verify Investment Information
In this age of information, we can easily access almost all the information we want, when we want it.
It’s so easy to forget that hundreds of millions of people around the world carry a computer in their pocket, which instantly grants them access to this vast reservoir of knowledge. This level of accessibility used to be the stuff of science fiction, but now is something we use on a daily basis.
Many investors sometimes take for granted just how much information they have at their fingertips. Real-time stock quotes, stock tables, annual reports, miscellaneous updates: this sort of data would’ve been extremely difficult, or at least very expensive, for the average investor to obtain just a few decades ago.
Despite this abundance of knowledge, there are still nefarious people out there who wish to spread false information and misleading “facts”. Although the quantity of information we have access to has increased, there are still lingering issues regarding its quality.
Unfortunately, investment information isn’t spared from this reality. Information is the lifeblood of investing – no decisions can be made without it, and if faulty or misleading information is used then an investor’s work and subsequent decisions are directly impacted.
So, how can investors protect themselves from potentially using incorrect or misleading information? One relatively easy way is to maintain a healthy sense of investment skepticism.
Blindly trusting everything you come across is both very naive and dangerous for your portfolio and future investment success. It doesn’t hurt to stop and question the validity of the information you’re using.
Why Bother Having a Sense of Investment Skepticism in the First Place?
To be “skeptical” is usually associated with some very negative connotations.
Skeptics are usually labelled as people who refuse to accept facts, are intent on spreading false information, and probably have some sort of hidden agenda to manipulate information.
If that’s the case, why on earth would an investor want to develop a sense of investment skepticism? After all, very few, if any, people enjoy being ostracized or being assigned certain labels.
It’s important to take a good look at what skepticism means in the first place. To be skeptical means to “have an attitude of doubting the truth of something (such as a claim or statement)” [source of definition]. A skeptic is someone who doesn’t immediately assume the information they come across is irrefutable: they want to assess its veracity a bit more before accepting it as true.
Therefore, to have a sense of investment skepticism simply means not taking everything at face value, and taking the time to verify the validity of the information you come across.
There’s nothing wrong with taking the time to check the validity of certain facts, statements, and claims. If anything, you’re saving yourself from potential problems down the road by making sure the information you work with is correct and accurate.
Remember, an investor’s analytical work is only as good as the information they work with. Therefore, it’s much better to check the quality of your information now as opposed to making major revisions to your investment work down the road because you learn that the information is faulty.
This may sound like a long, arduous process, but it really isn’t.
Checking the validity of the information can be as simple as looking for other sources and checking if they’re all consistent, or it can be as thorough as checking annual reports or news releases to ensure the data is consistent down to the cent.
While it doesn’t hurt to be a bit skeptical of the information you come across, there exists a fine line between a healthy sense of investment skepticism and being paranoid about every bit of investment information you encounter.
Healthy Investment Skepticism vs. Paranoia
It’s very important to understand that a healthy sense of investment skepticism and paranoia are two completely different approaches.
First, let’s look at investment skepticism.
To have a healthy sense of investment skepticism simply means taking a “trust but verify” approach, that is, assume that the information you come across is valid but still take the time to make sure that it is.
There are countless investment news outlets freely available to investors, and most of the time the information they provide is accurate and correct because it was subjected to rigorous editing before publication.
Therefore, investors can comfortably trust most of the information they come across, especially if the news outlets they use have a record of high-quality reporting.
However, you should never rely solely on one source: if there’s a major headline being reported by one news outlet, it’s very likely others are reporting about it as well. So, take the time to cross-reference the different sources and see if what they’re reporting is consistent with each other.
If the information across different sources is consistent, great, at least you’ve verified the validity of this information. But if there are inconsistencies between different outlets? Then this is a clear sign you need to dig deeper.
By maintaining a healthy dose of investment skepticism, investors stand to lose very little but gain quite a lot.
At worst, investors waste some time cross-referencing different sources only to discover nothing is amiss. At best, an investor can avoid using incorrect or misleading information, saving themselves from future headaches down the road.
Now, let’s look at paranoia.
A paranoid investor is someone who assumes that every single bit of information they come across is inherently flawed or incorrect, and places zero trust in whatever they come across.
It doesn’t matter if the information comes from a reputable source, or if multiple outlets are reporting the same thing: paranoid investors believe that every source of information they come across is misleading and that there’s some sort of deeper story to uncover.
It’s important not to take everything at face value, yes, but assuming that the entire world is out to get you isn’t exactly a sustainable thing to do. The only thing you’ll end up doing is mentally exhausting yourself and end up having major trust issues as an investor.
A skeptical investor and a paranoid one may sound similar, but the trait that distinguishes the two is trust. A skeptical investor assumes that the information they come across is trustworthy unless proven otherwise, whereas a paranoid investor assumes that everything is either grossly misleading or false, even if proven otherwise.
So, if investment skepticism is so important, how exactly can you learn to develop this trait?
Learning to Develop a Sense of Investment Skepticism
One of the nice things about investment skepticism is that it can be turned into a habit. Repeat it enough times and eventually, it will be something that comes as second nature to you.
The process for developing it is reasonably straightforward: the next time you come across investment information, assume that it’s trustworthy, but when given the opportunity take the time to verify it.
You can do this for any sort of investment information you come across, whether it’s a news article or a stock recommendation: the applications are seemingly endless.
For example, imagine you read a news article saying that a company that you plan on investing in has posted record earnings over the previous fiscal year. The article comes from a reputable source, so you have no need to be overly suspicious, but it would be wise to go over the company’s financials to check if they really did exceed expectations, or if the article was simply written in a creative way to get your attention.
Ultimately, your goal is to develop the mindset of not blindly trusting every bit of investment information you come across. You may not encounter misleading information that frequently, but you’ll certainly be glad you took the time to verify your information when you one day do.
Wrapping Up
Today, investors can access nearly all the information they want, when they want to. So many of us take for granted just how easy it is to get the information we need to make investment decisions, something that would’ve been extremely difficult for the average investor to get their hands on not too long ago.
Although there’s an abundance of investment information now freely available, this doesn’t mean all of it is high quality, let alone immediately trustworthy. There are still some people out there who spread false or misleading investment information, which can ultimately affect an investor’s decisions.
It’s fine to initially assume that the information you work with is reputable, but when given the opportunity it would be in your best interests to make sure that the information is indeed solid.
Investors stand to lose very little but can gain so much by simply taking the time to assess the veracity of the information they use.
