Advice that excites investors & encourages risky financial behaviour could jeopardise long-term happiness

While the moral police and liberationists debate the ban on porn sites, another form of titillation flourishes un checked. Financial porn is money advice that excites investors and encourages them to indulge in risky behaviour for short-term gains. The smut is peddled as SMS tips, get-rich-quick schemes, secret mantras for doubling money and offers for sharing the wealth of deceased millionaires and deposed dictators. Investors hooked to this form of porn seek short-term pleasure that could jeopardise long-term happiness.

The most common form of financial porn is the buy-this-sell-that stock advice that encourages small investors to treat their equity investments as short-term gambits.“The most insidious aspect of such advice is that it rarely purports to offer short-term pleasure. It is often disguised as one for longterm gains, as this usually absolves the `advisor’ from any accountability ,“ says Mumbaibased certified financial planner Jayant Pai.

Figures are critical in the financial erotica industry . The bigger they are, the more alluring they can be. The internet is teeming with tipsters and operators masquerading as equity analysts. These “experts“ suggest obscure penny stocks and small-cap counters, seducing customers with voluptuous gains of 800-1,000% in the stock in the past five-six months. Tantalised investors are unable to see through the pump-and-dump game the operators are playing on them. They are only using them to offload their shares at high prices (see story above). Consumers of financial porn are espe cially susceptible to what behavioural econ omists call the confirmation bias. They tend to selectively pick information that confirm their beliefs. Even if an equity analyst i neutral on a stock, an investor who is bullish on the counter will pick out the positive por tion of his report and interpret it as buy call The problem gets worse because smal investors are unable to distinguish whethe the analysis is based on the stock’s technical or fundamentals. If a technical analyst say that a stock is looking bullish, his prediction is based on the recent price movement and trading pattern. “It should not be construed as his reading of the long-term prospects of the company because technical analysis does not take into account a stock’s fundamentals,“ says Nitin Vyakaranam, CEO of financial planning portal Arthayantra.com.

coins_on_chartA recent Google study shows that a growing number of customers is now researching financial products on the net before buying.But Vyakaranam says they are still not asking relevant questions. “Ulip buyers don’t ask why the plan is good for them or what they stand to gain. They just want to know which is the best Ulip in the market,“ he says.

The craving for quick solutions and selective hearing make the customer easy target for mis-sellers. “During a conversation with the agent the investor catches what he wants to hear and is ready to buy without making the effort to understand the policy features,“ says a senior insurance official.

The lust for instant gratification make investors blind to risks. Before it closed down in 2010, Quantum Funds Online was offering 30% per month on the invested amount. A cursory research would have shown this was a fraud. Yet the scheme managed to fleece investors. SpeakAsia, which promised to pay big money for short surveys, raked in more than `2,000 crore from greed-stricken investors before authorities cracked down.

Source: TOI 17th Aug’2015