The so-called industry experts push inconsistent advice toward public investors, resulting from a conflict of interest due to funding and profiteering behavior.
Upon scrutiny, financial industry experts do not have much incentive toward expressing opinions for benefit of the public. A heavy veil of mystique has obscured the financial industry throughout history, and it leaves the majority of the population in the developed world uninformed and heavily influenced by mass media.
General Industry Analyst Behavior
More often than not the media personalities recommend “buy”, “hold” and rarely “sell”, which does not complement with economic swings. This logically leads to little precision. They base estimates on financial data of said companies and general industrial conditions, yet at any point in time an overwhelming amount of information for both up or down biases exist.
A definite exit plan plays a crucial role in any profitable business or investment scheme. The industry analysts push the public to buy, hold, or buy more to “diversify”, yet no recommendation of exit strategies for taking profit or limiting losses. Having no plan for liquidation leads to no damage control, and for some investors it means a world of pain in bearish periods.
Analyst Funding and Sponsorship
This leads to the motivations behind the often brash bullish bias promoted publicly. Who cuts their paychecks? Large financial institutions provide salaries and bonuses for the analysts. Ironically they gain absolutely nothing if the public investors (who they supposedly aid through media) end each held period profitably.
As prices tend to drop in heavy selling environment, the early sellers get to settle at higher prices while liquidity remains strong. If determined, institutions prefer to rid of their own holdings before the less informed public; hence the often “hold” instead of “sell” mass recommendations even in the worst of times.
Illegal Gains via Insider Trading
Another sinister yet accurate incentive behind the publicized persuasions points to insider trading. Illegal, yet not quite stopped. The resulting shifts in underlying supply and demand influence prices in the near term future. Institutions looking to purchase a particular investment position could face significant bargains if the occasional “sell” analyst opinion results in lowered demand along with price, and vice versa.
Public Investor Awareness and Resolutions
Despite the above, not all is lost for the average retail investor. Though not stressed in schools, thinking freely and making decisions independently remain keys to success in this game. At this point the only remaining consistent, unfailing source of judgment lies within oneself.
Free Sources of Information
The libraries and Internet hold a vast array of material on the financial industry for free. The academic research data present unbiased historical analysis, something the famed industry specialists lack. Unquestionably, a study of scientific findings would provide priceless value compared to the financial media outlets.
