18th May 2012
Over the years this has led to the increasing use of more sensationalist or emotive language – and this has inevitably spilled over into the coverage of business and finance.
To take one simple example, consider share prices, which a few years back tended to ‘rise' or ‘fall' but these days are just as likely to ‘soar' or ‘plummet'. Such instances only add to the ‘noise' that, as we have discussed before in articles such as Flight to quality, makes it so hard for people to look at global events and concretely use this information to work out how best to invest.
It is why markets have in recent years been known to fall 3% one day and rise 3% the next and why, if scientists were doing an experiment about investment, they would find a way to compensate for the noise or tune it out completely. Within the actual investment community, however, noise is as likely to be revered as removed and to be used to characterise a debate or drive it forward. That is rarely helpful.
Say, for example, you have identified a promising value investment but the market is falling. In the back of your mind you will be thinking that, unless you chance to buy the shares at the very bottom – which is most improbable – you will lose money on your investment before you start making it.
According to the behavioural finance concept of ‘loss aversion', people feel the pain of loss far more acutely than they enjoy the pleasure of gain – and that perception is only heightened by the emotional language increasingly being used in investment today.
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