Six Park regularly contributes to newspapers, online publications and consumer websites – it’s a valuable way of sharing our expertise and building awareness of our service. And, as a former journalist, storytelling is one of my strengths and passions.
As well as creating stories from scratch, I also receive invitations to contribute to other writers’ work. Over the past few months, quite a few of these invitations have been asking for stock tips or an ETF that I’d single out as a great selection.
Why are these stories so popular at the moment?
The rise of Robinhood – and how the news cycle works
The rising volume of stories about hot stocks is the result of a news cycle that is driven by data and click metrics that tell editors what people are reading about.
And in 2020, people wanted to read about hot stocks, as a result of unusual levels of market volatility, the rise of Robinhood and get-rich-quick stories about investors purchasing shares in some companies whose values rose dramatically during the year.
Robinhood is an American DIY stock trading platform with zero trading fees. In 2020, Robinhood was able to cash in on the enormous appetite from so-called “mum and dad investors” to get into the share market for the first time while prices were lower than usual.
While Robinhood isn’t available in Australia, local markets were similarly flooded with DIY investors, prompting warnings from both ASIC and the Reserve Bank on the dangers of day trading. That, of course, led to more stories about Robinhood – and when people are reading, reporters keep writing. It’s why stories about Collingwood Football Club always run on the front page in Melbourne – like them or not, they get clicks.
In Australia, search trends for Robinhood and Robinhood Australia peaked around the same time – in June, when a young Robinhood client committed suicide after seeing a huge negative balance that was actually the result of unsettled trades. Robinhood is reported to have added more than 3 million users in 2020 by the beginning of May, about half of whom were first-time investors.
When the timeliness of a news story fades, then reporters need to consider new angles. Moving on from writing about Robinhood itself, news outlets might start commissioning content that would appeal to the same people who have been reading about Robinhood. Use the same keyword or a great related clickbait headline and you’re likely to satisfy your target audience.
But here’s a question – does that mean the stories that are being written are the stories that are most important for the audience to read? For many – if not most – Australians, the “hot stocks” may be interesting, but probably shouldn’t be guiding the way you invest. In fact, ASIC and the Reserve Bank’s warnings suggest as much.
What’s this got to do with Six Park?
So how does Six Park get involved in stories about DIY share trading?
Well, as an online investment management service, Six Park has some common ground with online trading platforms.
Online investment platforms and services in Australia use technology to buy and sell assets that are listed on the ASX, as does Six Park. We are all about trying to make investing more accessible and affordable for every day Australians.
So, as I mentioned earlier, a reporter or blogger writing a story about investing online might easily decide to drop me a line.
But, where a platform like Robinhood allows investors to pick and choose their own trades without guidance, Six Park provides a set range of portfolios that relate to a client’s appetite for risk, how long they plan to invest, and how much knowledge they have about investing.
Our investing philosophy is about providing clients with support and scaffolding so they don’t have to stress about stock picking – we believe in “time in the market” rather than “timing the market” to create sustainable returns.
And, while each of our portfolios contains a range of different asset classes – such as Australian and international shares, global infrastructure, emerging markets and bonds, to name a few – these are used carefully to create an optimal portfolio rather than because they are a “hot stock”.
There’s an enormous amount of research, analysis and experience behind the scenes to create a portfolio that appears simple. Singling out one company or ETF and saying it’s likely to do well is quite possible, but it doesn’t reinforce the importance of diversification, which is fundamental to the way Six Park invests on behalf of our clients. And, for most Australians who are new to investing or relatively inexperienced, getting the right support and being diversified are more reliable ways to build wealth over time.
5 Questions to Ask instead of Searching for Stock Tips
The interest in these kinds of articles is natural – everyone likes to think they’re getting the inside scoop on something.
But, while there are success stories among novice investors, there are mountains of data to evidence the fact that even experienced professionals struggle to beat the performance of a benchmark index.
As Warren Buffett famously said: “By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals.”
So, if you’re speculating on which ETF or individual stock might do best in 2021, what are the questions you could consider asking instead?
- How much time do you want to spend managing your own investments?
- Are your investments properly diversified – across different asset classes and geographies, not just across a handful of individual stocks?
- How would you respond if the market value of your investments fell significantly?
- Do you understand your own appetite and capacity for risk?
- And, sorry but I have to ask, do you believe that you can beat the market long-term when most professional investment managers can’t?
The reality is, most investors are likely to be better off sticking to a well-diversified portfolio of exchange-traded funds, rather than trying to pick and choose stocks in a way that has more in common with gambling than it does with investing.
So by all means, read the clickbait stories, but know that there are lots of other great questions to inform the way you consider investing in 2021 and beyond.