Can You Spot Garbage Content? 🗑️
There's so much of it online, including on blossom, so I thought of a way to spot bad/garbage financial advice from finfluencers. Here is a list of common investing misconceptions and improper terminology. If you spot content with this... You know what to do with it! 🗑️
1. 'My dividend income from an ETF' ... funds give DISTRIBUTIONS. Clear sign of an inexperienced investor
2. 'I made blank%' ... Is it total return? Is it price return aka capital return or is it dividend/distribution yield? Is it time weighted return, money weight return? Is it on initial capital invested or or or. Missing that detail makes the statement meaningless or even ....misleading 🗑️
3. 'Dividends/distributions are "free money”'... It isn't free money... It comes directly from the stock/fund you're invested in. A clear sign of not understanding how companies and ETFs distribute cash.
4. 'My investment is in the S&P 500, Nasdaq 100 etc '.... no, they are indices you invest in the index ETF or mutual fund. There is a difference. Not understanding what an index fund is, and how a product attempts to track it can lead to very poor fund selection.
5. 'ETFs are diversified'.... Factually misleading... it depends completely on the ETF... You need to look under the hood to know the underlying holdings and the effective number of stocks. You could own 5 ETFs of one stock each or a few in a certain sector. The product itself doesn't make it a diversified investment.
6. 'MERs don't matter' ... MERs are a huge determiner of future fund performance and wealth. For example, a 2% MER is 50% LESS total returns for the 'world market' over 30 years. Clear sign of garbage content when disregarding something we can control. This is a basic of financial hygiene.
7. 'A stock is cheap because it's down blank % or because it's down blank % from its ATH' .... Price does not equal valuation... Ever. If you're picking stocks, a falling price could mean many things, including a mature business in decline, permanent decline.
8. 'Risk is volatility' .... Volatility is only ONE form of MEASURING price variance. Returns, time, benchmark, etc needs to be taken into consideration.
9. 'Bonds are safe or bonds don't lose money' .... Bond prices fluctuate and can do so wildly. Bonds may be less volatile than stocks, however, they still carry the risk of losing money and volatility.
10. 'I'm up 20% because my portfolio is larger by 20%' ... Portfolio value can change from CONTRIBUTIONS ... You can lose capital on your investments and contribute more than you lost and say... Hey my portfolio is bigger so I made 20%. Without knowing if new money was added and how much...
11. 'I beat the market' ... 'My performance compared to this benchmark is' would be the accurate way to frame it. One needs to know their twr and the return of 'the market'. W ithout sharing their benchmark and risk metrics, its pretty meaningless... No receipts means throw it in the trash.
12. 'Taking profits' ... You mean realizing a capital gain 🙃 it's just a tax event guys.
13. 'Good company means a good investment' ... Valuations matter and not all good companies are good stocks and vice versa.
14 'Paper loss , paper gain... You mean UNrealized loss or gain. The gain and loss are just not material tax events, that's all. Your portfolio value is your portfolio value at that time nonetheless. Don't think it isn't important just because it's not yet a tax event.
15. "The market is going to crash when .... the market is going to rip when.... buy this ... sell this" .....Predicting market movements, up and down, the duration, start and end dates, essentially macro market timing, has been studied academically for decades. No one can predict the future as much as finfluencers claim.... we cant even predict the weather next season with any accuracy let alone the next few years!
These aren't just pedantic corrections. The wrong terminology and concepts often reveals a lack of financial fundamentals and understanding of principles. It could also reveal poor intentions.
For example, someone who says “my ETF paid me a 10% dividend” may genuinely believe they've received a 10% RETURN, when they could actually have a fund that distributed 10% while the underlying investment LOST value. That's a much more important mistake than simply using the wrong word....
Be careful with who you follow, the content you ingest. And don't just believe me blindly... Look up financial concepts/terminology if you're unfamiliar with it and build up your knowledge base... once you start connecting the dots... you'll quickly be able to spot a charlatan in seconds of reading a post.
Happy Thursday Blossomers!
