In the spring of 2021, Volkswagen issued an official press release stating that as part of their commitment to electric vehicles, they would be changing the company name to Voltswagen.1
The story was picked up by the major news outlets. And investors, eager to get in on what was sure to be a profitable initiative, bought up the stock, causing it to soar nearly 20%.2
But they should have checked their calendar. Volkswagen, hoping for a little extra attention, had simply released their April Fool’s Day joke a few days early.
In 2015, Tesla announced a whole new product line called the Model W. As predicted by themedia, it was a watch.3 Investors acted quickly on the news, trading more than 400,000 sharesof the company, causing the stock price to jump. But again, they should have looked at the date.Tesla made the announcement on April 1st.
During the Obama administration, hackers took control of the Twitter feed of the Associated Press. They sent out a tweet announcing that the White House was under attack by terrorists.4 The stock market responded immediately by dropping 143 points. Later in the day, when the bulletin had been confirmed as false, the market recovered. But it showed that one outrageously false tweet from one news source could send active investors into needless panic.
Unfortunately, the release of bogus news stories that affect the market is not restricted to April Fool’s Day. Fraudulent or at least inaccurate news can cause losses for investors year round.
Robert Cavazos, a business professor at the University of Baltimore, conducted a study on this subject in conjunction with CHEQ, a cybersecurity firm. In their research report they stated that fake news has cost the market $39 billion annually. And that as much as 1/2% of the market’s value is at risk for losses due to fake news.5
“This is the lower bound,” said Cavazos, “the conservative simulation on all the past reported effects of stock market fluctuations.”
It’s tough enough to pick winning or losing stocks based on the latest information. But when there’s a good chance that information might be incomplete, in error, or purposely false—you might as well make your picks at random.
The prudent investor, who is in for the long-term, will certainly see his or her investments temporarily fluctuate in response to the latest bad news. But unless he or she sells right away, as more accurate news comes out, the values are likely to recover as they reflect all available information.
So, enjoy April Fool’s Day, especially since it’s the one day a year we can be sure the suspicious sounding news stories are false.
Sources:
1. https://www.oregonlive.com/business/2021/03/volkswagen-hoaxes-media-with-voltswagen-fake-news-release.html
2. https://www.linkedin.com/pulse/april-fools-day-how-pranks-impact-stock-market-peter-ivantsov/
3. https://www.tesla.com/blog/announcing-tesla-model-w
4. https://www.theguardian.com/business/2013/apr/23/ap-tweet-hack-wall-street-freefall
5. https://www.institutionalinvestor.com/article/b1j2ttw22xf7n6/Fake-News-Creates-Real-Losses
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