For anyone attempting to make good financial decisions, the wealth of information and jargon out there can be daunting. This is especially true when looking into global investments, where an investor may come across unfamiliar concepts such as “annualized standard deviation” or “treynor ratio”. While these concepts can help an investor to maximize their portfolio, it is important not to get too caught up in the numbers. It is well known in the industry that modern finance can often be shrouded in technical terms that are used to perpetrate a range of marketing hoaxes.
So how do you identify the hoaxes from the genuine analysis? A good start is to be aware of the common indicators of a hoax that you may come across in documents or discussions. These indicators often take the form of language or phrasing. Most investors will learn that terms such as “guaranteed investments”, “low-risk/high reward”, and “surefire success” should immediately set off alarm bells. These terms generally indicate that whatever it is that is being presented to an investor is not backed up by the facts.
It is also important for investors to be aware of the various technical terms that are used to inflate the value of certain investments. Periods of positive returns are often portrayed as “unparalleled”, while an increase in a certain metric is invariably “unprecedented”. While a well-versed investor may know the difference between statistical probability and marketing spin, new investors may be unable to differentiate between the two and be swayed by the grandiose language.
Perhaps the most significant obstacle between investors and financial success is the sheer noise within the market. Everything from outdated theories to misinformation from various sources can contribute to an investor becoming overwhelmed. While the proliferation of information can be helpful in making an informed decision, it can also be detrimental when too much is taken into consideration. A good rule of thumb is to research the basics of an investment before even considering entering the market.
By understanding the indicators of a hoax, the technical terms that may be used to inflate value, and the sheer amount of noise that surrounds investments, investors can successfully identify potential scams and distinguish real opportunities from things that simply appear to be. There is nothing more satisfying to an investor than making the right decision, and by using these three strategies, investors can ensure that their decisions will be the right ones.
