Fake financial news: what to look out for and how to stay safe

Before making any investments, you need to be well informed and make sure that you don’t fall victim to fake news designed to influence your investment decisions. Fake financial news can be particularly sophisticated and harder to detect. But don’t panic! myLIFE will walk you through how to spot fake news and protect yourself.

Today, everyone is familiar with “fake news”, a term born of the digital age that encompasses a number of different realities. The original meaning of the term is disinformation, i.e. the deliberate dissemination of false, incorrect or misleading information with the intention of harming a person or a company, influencing opinions or fraudulently profiting. Fake news also includes misinformation: the unintentional spread of false information through carelessness or haste. While the existence of fake news is not new, the unprecedented speed of its spread is due to digital channels like social media and the rise of politically or economically motivated “troll farms” that deliberately create disinformation.

In 2022, 70% of Europeans were regularly exposed to fake news, while only 12% felt confident in their ability to distinguish fake news from genuine information.

In the fast-paced digital age, we often share sensational information without bothering to verify its truthfulness beforehand. As a result, fake news spreads rapidly, infecting many people before being debunked. From influencing election results to affecting health behaviours, the negative impact of fake news is well documented. During the COVID-19 pandemic, the WHO even referred to an “infodemic” to highlight the similarities in spread to the virus itself. According to Statista, 70% of Europeans were regularly exposed to fake news in 2022, while only 12% felt confident in their ability to distinguish fake news from genuine information.

Fake financial news: some illustrative examples

In finance and investment, fake news can have a severe impact on companies and investors. Often more sophisticated, it can be harder to spot and even reputable news agencies sometimes struggle to identify fake news, which can come in many forms: fake press releases, widely circulated rumours, false advice from pseudo-experts, financial lingo, etc. Here are a few examples that have shaken the markets in recent years.

• • On 22 November 2016, Bloomberg, AFP, Reuters and other media outlets received a press release by email that appeared to have originated from the Vinci Group’s press office. The document, signed by Vinci’s press office, announced massive fund misappropriations and the dismissal of the Deputy CEO and the CFO. The information seemed authentic and was widely reported by the media that day. The stock price dropped nearly 20% within minutes before Vinci denied the statement, causing EUR 7 billion to evaporate in the stock market turmoil. But it was too late: the price did not recover by the end of the day and closed lower despite the widely reported denial.
  • In spring 2022, American start-up Lithium Corporation saw its stock soar by 250% within half an hour after a fake press release announced its acquisition by Tesla. Elon Musk, the CEO of the American carmaker, had indeed tweeted about the need to secure lithium supplies, but there had never been any contact between him and the start-up. Sawyer Merritt, one of Tesla’s best-known enthusiasts, failed to verify the fake news and spread it to his audience. The number of trades in the stock increased 100-fold in one day. The authors of the fake news, who had bought shares in the company before launching the rumour, profited handsomely from its spread.
  • Because fake news can be so lucrative, certain companies have specialised in writing false information to serve the interests of unscrupulous clients. In 2017, several contributors to Seeking Alpha, an independent financial information platform, were approached by dark communication firms willing to pay them for publishing false articles praising certain securities. The fraud was uncovered thanks to a whistleblower.

Many large companies, such as Bank of America, General Electric, Pfizer, Intel, Shell, Google, and BlackRock, have fallen victim to fake news of various types. While the consequences can be very real, in the vast majority of cases the situation can be remedied fairly quickly. However, the financial impacts can sometimes be significant, and smaller companies are particularly vulnerable, as fake news about them is less likely to be detected immediately. This makes it easier for fraudsters to go under the radar, and it also makes it harder to quantify the impact of fake news on smaller companies.

The development and widespread use of artificial intelligence is increasing the sophistication of fake news, especially when it takes the form of images. In May 2023, a fake AI-generated image showing thick black smoke near the Pentagon was widely shared, causing a temporary drop of 0.26% in the S&P 500. This image was massively shared on Twitter by the Russian state media account RT and users impersonating recognised news sites like Bloomberg. The financial markets were shaken, but then quickly recovered when it became clear that the image was fabricated and official, verified denials were circulated.

Individual investors are the most vulnerable, which is why it is so important to understand the mechanisms behind fake news in order to protect yourself.

As these examples illustrate, the impact of fake news on the markets is real. Fortunately, this impact is often temporary and only lasts until market professionals verify the information. However, in the meantime, individual companies can lose a lot of money, and unverified sharing on social networks can hurt individual investors. Investors in a panic might sell and incur heavy losses if they lack the nerves to accept a temporary decline in their investments while waiting for the market to correct once the information is verified. Individual investors are the most vulnerable, which is why it is so important to understand the mechanisms behind fake news in order to protect yourself.

How does fake news infect us?

Why does fake news have such a disruptive power? Fake news spreads rapidly online, and our brains can succumb to the illusory truth effect, which involves mistaking familiarity for truth. We confuse plausibility and repetition with truth, making widely spread news seem more credible.

Unfortunately, digital algorithms can polarise opinions when they act as echo chambers, amplifying the spread of fake news shared by your social circle. The aura of veracity is difficult to resist unless you make a conscious effort to doubt this repeatedly shared “truth”.

Convincing and widely shared fake news, such as falsified announcements about a company’s failure or its acquisition, can generate strong emotions like fear, anger, or excitement, leading to overreaction and poor decision-making. Fake news plays on your emotions (panic or excitement), which are poor advisors as they favour overreaction at the expense of reflection.

Even when debunked, fake news can leave lasting doubts, affecting your investment decisions.

Not only is it difficult to take a step back, but these emotions also have the power to root information deeply in our memories. Even when debunked, fake news can leave lasting doubts, affecting your investment decisions about the financial health of a company, for example. It may even make you no longer want to invest in a company.

How can you protect yourself from fake news?

You can learn to better detect and protect yourself from the disruptive power of fake news by following these tips.

• • Learn to slow down. This is both the simplest and the most important piece of advice. By appealing to our emotions, fake news engages our automatic and primitive brain, which overreacts and makes irrational decisions. The answer is to take the time to analyse and verify the information presented to you. Do not succumb to the false urgency of liquidating your positions because of unexpected bad news.
  • Exercise critical thinking and learn to understand your reactions. Most fake news is designed to provoke strong emotional reactions, such as fear or anger. When information generates such emotions, force yourself to be critical: who wrote this story and why? Is it promoting a particular programme or investment? What real risk does this represent for my investments? Who is benefiting from this fake news?
  • Learn to distinguish between what’s true and what’s plausible. Just because information that is widely shared and reported seems true and in line with what you think does not mean it’s actually true. This just generates what’s known as cognitive fluidity, which can help you remember a piece of information but which has nothing to do with whether that information is true or not. You should always question yourself when information that generates strong emotions in you is all too easy to accept.

Just because information that is widely shared and reported seems true and in line with what you think does not mean it’s actually true.

• • Don’t share or forward information without checking it. Fake news becomes more widespread and has a greater impact on markets if it’s widely shared without being challenged. To stop fake news, you need to break the cycle of contagion. How? By always verifying information before sharing it. This is good for your own investment portfolio and for the market as a whole.
  • Inoculate yourself against fake news to better protect yourself. Fake news spreads like a virus, infecting individuals and markets alike. But just like a virus – at least according to the thesis of international fake news specialist Sander Van der Linden – you can inoculate yourself against fake news by exposing yourself to it in small doses. Are you familiar with fake news? Analyse the fake news critically and investigate why it was so effective. Trace its spread and the effects it had to better understand its impact.
  • Verify and cross-check your sources. Always seek the original source of the information and don’t rely solely on the latest share from a colleague or relative. Consider the website, the author and their credentials, and look for any mistakes that might indicate fake news.
  • Use fact-checking websites. Many platforms now exist to verify the accuracy of both text and images. Use them to ensure that any information you see is correct.
  • Leave it to the pros. If you feel overwhelmed by the potential impact of a piece of information and are unsure how to react, then you can always consult your banking adviser! Financial professionals understand the harmful effects of fake news and are trained to identify it. More and more financial institutions are equipped with AI-type tools that can detect fake news. Don’t hesitate to seek assistance before making any hasty decisions with your investments.

As you can see, fake news is widespread in the financial world and can cause significant harm. The key takeaway is to break the cycle of automatic emotional thinking, contagion and sharing. This approach not only protects you but also safeguards other market participants. Having the right instincts is a matter of collective responsibility as well as individual interest. When confronted with sensational information, stay calm, take a moment, and critically assess the situation.