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Charles de Berenger burst into Dover’s Ship Inn just after midnight on 21 February, 1814, wearing a grey military coat and a medal around his neck1.

He had just arrived from Paris with glorious news, he said.

Napoleon was dead. The brutal war in Europe was over. The allies had taken Paris.

As the news spread, prices of UK government bonds and government-related stocks soared – and de Berenger and his partners sold theirs at a handsome profit.

His story was fake.

A new era of manipulating markets with misinformation had begun.

More than 200 years later, misinformation is rife and fake news scandals regularly hit markets.

In 2013, a hoax AP tweet said two explosions at the White House had injured President Barack Obama. The Dow Jones Industrial Average briefly plunged 100 points2.

In 2015, Avon Products received an $8.2 billion takeover offer valuing it at three times its market price. It was a hoax3. The same fraudster had made an identical move three years earlier on the Rocky Mountain Chocolate Factory.

In 2019, a fake shareholder letter from Blackrock CEO Larry Fink claimed a new dedication to environmental causes and was followed quickly by a fake press release – debunking the hoax but containing further misinformation4.

Deliberate manipulation is not the only misinformation that moves markets.

These days, misinformation emerges daily from the maelstrom of social media and is fuelled by traditional media’s hunger for a headline.

“Everyone becomes an expert. But there’s an increasing gap between what we know and what we think we know,” says Nader Naeimi, AMP Capital’s head of dynamic markets.

The 2020 outbreak of the COVID-19 has been accompanied by waves of misinformation that investors have been forced to wade through. The flurry of information – both right and wrong – has sent markets spinning5.

The World Health Organisation itself claimed 'trolls and conspiracy theories' had made it difficult to disseminate accurate information6.

In the earlier months of the COVID-19 outbreak, one theory claimed the virus was a biological warfare experiment gone wrong and the passing of the doctor that discovered the virus was a cover up. Another claimed the virus was part-HIV. Some stories spread fake cures. Others spread misinformation about the origin of the virus, linking it to bats and snakes7.

In 2013, a hoax AP tweet said two explosions at the White House had injured President Barack Obama. The Dow Jones Industrial Average briefly plunged 100 points.”

Many of these stories seem absurd, especially in hindsight.

But the rapidity with which new stories are fabricated and the sheer velocity of their dissemination makes it difficult to tell real from false. This can impact an investor’s mindset. Worse, it can undermine the level of trust in official reporting.

Separating the signal from the noise becomes crucial.

Unfortunately, that’s not something at which humans are naturally skilled.

Timothy Levine has been studying deception at the University of Alabama for more than 20 years8. His finding from repeated experiments is that people are only slightly better than chance at detecting a lie9.

“Day in and day out ... [w]e uncritically accept virtually all of the communication messages we receive as ‘honest’,” he writes in his 2019 book Duped10.

“We all are perceptually blind to deception. We are hardwired to be duped.”

This ‘truth-bias’ is an evolutionary feature that allows us to function socially and, because most of us do actually tell the truth to each other most of the time, it’s actually mostly accurate, he says.

But it leaves us vulnerable to deception and makes it tricky to distinguish facts from misinformation.

Not only can’t we tell when people are lying, we’re also remarkably good at spreading the lies ourselves.

A 2018 study11 of social media found false news reaches more people than the truth.

“Falsehood diffused significantly farther, faster, deeper, and more broadly than the truth in all categories of information,” the study’s authors wrote.

“We found that false news was more novel than true news, which suggests that people were more likely to share novel information.”

 AMP Capital’s rules for dealing with misinformation

With Nader Naeimi, head of dynamic markets.

“A much wider gap between what we know and what we think we know makes us far more error prone and reactive in decision making,” says Naeimi.

To narrow that gap, Naeimi uses the following principles in managing client’s portfolios:

  • Do not invest based on precise forecasts.
  • Do not sacrifice 'information processing' for 'information gathering' (a wealth of information without the appropriate processing power creates a poverty of attention)
  • Stick to the facts and the indicator weight of evidence.
  • Play the game we set out to play. If we start taking cues from people playing a different game than we are, we are bound to be fooled and eventually become lost, since different games have different rules and different goals. 
  • Few things matter more with money than understanding your own time horizon and not being persuaded by the actions and behaviours of others.

So, what can an investor do about it?

In a world of misinformation – both deliberate and inadvertent – how can a sensible investor separate truth from fiction and market manipulation from genuine trading opportunities?

“As fund managers, we need to know what is worth reacting to and what is a product of the 24-hour news cycle,” says Brad Creighton, dynamic markets portfolio strategist at AMP Capital.

“In the age of information, it can be easy for investors and advisers alike to be swayed or distracted by articles, statements and opinions which lack evidence, rigour and analysis. Certain headlines can be frightening and foster an air of anxiety.”

Creighton says AMP Capital applies filters to assess incoming information and guide investment decisions.

“We have models to help us separate signal from noise during the regular flow of economic data,” he says.

However, navigating ad hoc events for which there may not be a ready-made model becomes trickier – and requires human judgment and a steady hand.

Shane Oliver, AMP Capital’s chief economist and head of investment strategy, reminds that investment markets constantly go through cycles of good times and bad12.

“These cycles in markets get magnified by bouts of investor irrationality that take them well away from fundamentally justified levels,” he says.

His advice: turn down the noise13.

“We are now exposed to more information in relation to everything including our investments,” he says.

“But often we have no way of weighing such information and no time to do so. If we can’t filter it, it becomes information overload and noise.

“The problem is being compounded by an explosion in media outlets all competing for your attention. We are now bombarded with economic and financial news and opinions with 24/7 coverage.

“And in competing for your attention, bad news and gloom trumps good news and balanced commentary.”

Oliver says the noise is making us worse investors: fearful, jittery and short term.

This is compounded by our innate preference for avoiding losses over acquiring gains.

Everyone becomes an expert. But there’s an increasing gap between what we know and what we think we know.”

- Nader Naeimi, AMP Capital


The term 'loss aversion' was first coined by psychologists Amos Tversky and Daniel Kahnemen in a 1979 paper14. It refers to the finding in experiments that people who lose $100 lose more satisfaction than the satisfaction they gain from a $100 windfall.

“This probably reflects the evolution of the human brain in the Pleistocene age when the trick was to avoid being eaten by a sabre-toothed tiger or squashed by a woolly mammoth,” says Oliver.

“This makes us biased to be more risk averse and on the lookout for threats which leaves us more predisposed to bad news stories as opposed to good news stories.

“So bad news and gloom find a more ready market than good news or balanced commentary as it appeals to our instinct to look for threats.”

“This can be bad for investors as when faced with more (and often bad) news we can freeze up and make the wrong decisions with our investment as our natural 'loss aversion' combines with what is called the 'recency bias'. That sees people give more weight to recent events which can see investors project recent bad news into the future and so sell after a fall.”

Creighton uses the coronavirus or COVID-19 as an example of dealing with information and misinformation.

“The scale of an epidemic is an important factor in analysing market impact, but you first need to determine what to measure,” he says.

“In the case of an epidemic, mortality rates hit our fear impulse hardest. However, for financial markets, the significance of an event like this boils down to the level of disruption caused to regular flow of goods and people.”

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He points out that 11,000 people died from the Ebola outbreak in West Africa in 2014. However, the disruption caused to the global economy was much less than with COVID-19, even in its early stages, because of the differences in population density and the impact to global supply chains.

Creighton also counsels to consider the full economic context of a piece of news to judge how harshly markets will be impacted.

In the 2003 outbreak of the SARS virus, GDP in China fell by more than 2 per cent in the June quarter15.

Day in and day out... we uncritically accept virtually all of the communication messages we receive as ‘honest.’ We all are perceptually blind to deception. We are hardwired to be duped.”

- Timothy Levine

But that came at a time when the economic backdrop was already weak, recovering from the early 2000s recession which saw the collapse of Enron, bursting of the tech bubble and the September 11 terrorist attacks.

“A little situational awareness and rational thought can provide a timely filter,” he says. “This is critically important when making investment decisions and analysis.”

Who can you trust?

AMP Capital focuses on monitoring known credible sources. For viral outbreaks, sources like the World Health Organization and credible institutions such as the London School of Hygiene and Tropical Medicine and the Imperial College London represent trusted outlets.

“With the benefit of a tried and true investment process and an ability to identify the facts that matter, we can get on with doing what we do best: growing and guarding our client’s capital,” says Creighton.


Important Notes

While every care has been taken in the preparation of these articles, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in them including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. Performance goals are merely goals. There is no guarantee that the strategy will achieve that level of performance. The information in this document contains statements that are the author’s beliefs and/or opinions. Any beliefs and/or opinions shared are as at the date shown and are subject to change without notice. These articles have been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. They should not be construed as investment advice or investment recommendations. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.


Learning from a life of risk and conviction

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