FUD
Reading time: about 7 minutes
Fear
Uncertainty
Doubt
Meaning approximately fear, uncertainty, and doubt. FUD stands in a sibling relationship to FOMO (Fear Of Missing Out), which I explained in a post a few weeks ago. See: https://app.getquin.com/activity/OzIFzdcZHJ
It involves evoking the eponymous emotions in an individual or a larger number of people. Broadly speaking, for example, a political party might engage in a FUD strategy before an election to influence voters (vote for us, because voting for party X will prevent the new school from being built). Media could also use FUD to deliberately influence or even form opinion through targeted negative reporting: earthquakes here, war there, deliberately highlighting and dramatizing individual cases and simultaneously portraying them as if they were everyday occurrences. So much for the general understanding, but here it should be about FUD in connection with shares or the stock exchange.
Emotions stay outside
Investors might be negatively influenced by FUD and tempted to make bad trades. This phenomenon can be observed particularly well in heavily short sold and meme stocks, where exaggerated positive and negative news alternate every minute, leading to unusually high buy and sell transactions. But FUD has also been observed in established companies such as Meta (formerly Facebook) over the last two years. Among other things, due to a large number of negative reports (missed quarterly targets, lack of advertising revenue, declining user numbers, possible stricter regulation), the share was gradually sold off, and even the visions regarding Metaverse could not change this. There were even reports of the inevitable end of Metaverse. At some point, the share found its bottom and started to rise again, but at that time many (small) investors had probably already sold their shares. Courageous investors or institutions with more knowledge and experience will have participated accordingly and are now looking at a nice return.
I assume that the negative reporting about Meta triggered FUD in many investors and caused them to make decisions (unplanned and/or panic selling) which, as things stand today, have turned out to be wrong. But: could have, would have, bicycle chain. Moreover, one should not make the mistake of judging one's past behavior with today's knowledge. Rather, the so-called ex-ante view should be used. What did I know, think, feel at the time of the action? If I sold a stock a year ago because of FUD, which is flourishing today, I may not judge it retrospectively as bad. But I can learn from it and try to do better at the next opportunity.
Similar to the last months with Meta can be observed today with Paypal. The news situation is mainly negative, which can also be seen in the current share price. Whether it will come here as with Meta also to a breakout upwards or a further crash, the future will show.
Targeted FUD?
FUD is also deliberately used to create uncertainty among investors and customers and thus to influence the market and consumer behavior (among other things). FUD examples from the recent past come from Tesla's CEO Elon Musk. He has repeatedly claimed on the platform X (formerly Twitter) that traditional car manufacturers build inferior electric cars in order to profit from the e-wave, without caring about innovations and adequate developments at the same time - it is conceivable that investors would be deterred from investing in a predominantly conventional car manufacturer because of this.
Likewise Elon Musk: On 07.08.2018, he had claimed on Twitter that he was thinking about taking Tesla off the stock exchange. Due to subsequent price fluctuations, Nasdaq briefly suspended Tesla shares from trading on the same day. Due to this tweet, not only FUD but probably also FOMO was triggered shortly thereafter, which probably triggered panic selling and also new investments.
An almost historical example of targeted FUD comes from the early 2000s. Back then, the Blackberry cell phone was the must have for stars and starlets and, of course, for anyone who was somehow important (or at least thought they were). With the Blackberry you could not only make phone calls, but also write emails and surf the internet. The then CEO of Blackberry, Jim Balsillie, made several negative and derogatory comments towards the new Apple company and its latest product: the iPhone. At the same time, he tried to emphasize the importance and added value of Blackberry. The end of this story should be well known.
Even further back to the time of the Cold War. The nuclear powers USA (Democratic-Capitalist) and the Soviet Union (Communist) and thus two value systems are facing each other in a global context. Although there is no military conflict (hot war), both sides are intent on creating a mood against the other. It is much easier to sell military and nuclear armament to a frightened population (mass FUD?) than to a relaxed one.
In the Middle Ages in Europe women were burned at the stake as witches. The population was taught that women, if they fulfilled certain characteristics, had to be witches. Women who were red-haired or skilled in herbalism fulfilled such characteristics. It was believed that these women were in pact with the devil himself, and their burning was necessary for the protection of the righteous, Catholic population. A population that lives in fear of witches will quickly come to terms with such methods and even approve of them.
It can be seen that FUD is not a modern phenomenon, but has always been there. Mankind has not kept up with all its technological developments and in certain areas is still more influenced by emotions than is good. Therefore, we still fall prey to thinking errors, even though we are well aware of them and we should, purely theoretically, be able to avoid them.
Protection against FUD?
Humans tend to attach a lot of importance to their emotions. In evolutionary terms, this was important, but in the context of investments, it can be a hindrance and lead to financial losses. Personally, I try to avoid FUD by investing in companies that I believe are sustainable, among other things. This fits with my long-term investment strategy and lets me weather red phases more easily. In certain companies - in my case AMC - I specifically invest only play money, so that I can claim for myself to exclude FUD in advance.
I do the same with smaller investments in alternative cryptocurrencies. Invest and see what happens. Do not allow any emotions. The crypto market in particular is especially prone to triggering FUD. The investment form is relatively new, partly little or not at all regulated and quite a few market participants have an interest in as much FUD as possible in the area of cryptos - e.g. classic banking institutions or pure stock traders, who may let a lot of potential profits pass here or have to forego money flow that would otherwise have landed with them.
Having a clear investment goal, a set investment amount, and objectively evaluating company numbers, news, and other sources can help keep emotions in check. The sharpest weapon against FUD is knowledge of the phenomenon. When you notice FUD fighting its way to the surface, you should first pause, reflect on FUD, and approach the problem objectively.
Related topics: FOMO; cognitive distortion
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