As some of you may recall I wrote my First Investing Lesson about the important of doing research. So now I thought I would write about important of not following the media. I was naive when I  learned this lesson, but I’m glad it was one  that I learned relatively early in my investment career.

I had just read an article on ethanol production one company was mentioned. I instantly looked up the company to see what they were all about. For some reason this article had gotten me all excited and I generally try not to invest emotions along with my money.

Although I had done a small amount of research, it was mostly cosmetic in nature and unfortunately did not deter my enthusiasm  for this company. In retrospect I wish there was some information that was impossible to ignore and would  have prevented me from investing.

Instead I convinced my dad to buy the stock for me at $27 a share, it would never reach that high again while I owned it. The price started to fall, slowly at first but a couple months later it was around $14. No investors like to see such volatility especially very new investors. I still hung on to the stock hoping for a bounce back and I was somewhat lucky. It went to $17 where I eventually sold and then proceeded to put the money into a mutual fund.

A couple months later I went back and look at the stock, it was hovering around $15. I then went and looked at when I had bought it, there was a peak. Essentially I bought at a terrible time, that peak can be partially blamed on the media. At the time that I purchased it, the company was getting a lot of attention in the media and this was driving up demand for the stock. The increased demand lead to an increase in price, thus resulting in the inflated peak.

Media attention can often inflate or deflate stocks. If you realize this you can then buy stocks when the media delivers bad news, since it will further decrease the price instead of buying an overpriced share. I hope this helps all the new investors out there avoid a potentially bad situation.

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Filed under: Investments, Portfolio Income