How Hysteria Kills The Market (NVAX)

Asteroids. Y2K. The swine flu. Mad Cow disease. Killer wasps and killer Wi-Fi. What do these things have in common? They're all part of a graph designed by Information is Beautiful. Dubbed Mountains Out of Molehills, the graph is an interesting (and interactive) look at the world's greatest fears.

By far, the swine flu – the horrifying virus that swept the world two years ago – is the most prominent media scare story of the past decade, leading investors down a rocky road of troubling investments.

On March 6, 2009, Novavax, Inc. (NASDAQ: NVAX) was trading at $0.56 per share; on August 28, the stock peaked at $5.89. Investors bought into the company because they believed that the swine flu would fulfill the fears of the media, requiring millions (if not billions) of people to get the H1N1 vaccine or face certain doom.

If you were lucky enough to abandon Novavax shortly after that, then you might have made a nice profit. At the very least, your losses would have been greatly reduced. But those who chose to hold onto the stock, believing that the swine flu catastrophe had only just begun, have been faced with quite the roller coaster ride.

Chart: Google (NASDAQ: GOOG) Finance

By October 2, Novavax had dipped to $3.43; two months later, the stock lost another 90 cents.

This, of course, is one of many instances where investors responded too quickly to the mass hysteria brought on by the media. Predicting the worst, investors turned their attention to the manufacturers of the H1N1 vaccine.

Several years prior, investors questioned the value of Tyson Foods, Inc. (NYSE: TSN), McDonald's Corporation (NYSE: MCD) and Wendy's (NYSE: WEN) as Mad Cow disease struck again. According to MarketWatch, the dangerous meat did not enter the food supply, but that didn't stop beef-dependant companies from feeling the effects of wary investors.

Asteroid collisions and the millennium bug are among the biggest flops showcased on Mountains Out of Molehills. Scientists repeatedly warn us that we're always at risk for the former disaster. The former disaster isn't likely to occur anytime soon, and we all know how Y2K turned out.

Video game violence also makes the cut, but investors needn't worry: this is a subject that has never hurt sales. In fact, the negative press surrounding the violence in Mortal Kombat and Take-Two Interactive's (NASDAQ: TTWO) Grand Theft Auto series may have actually helped increase sales by providing a steady stream of free publicity. Product delays, low-quality releases, and stiff competition have had a much greater impact on the likes of Activision (NASDAQ: ATVI), Electronic Arts (NASDAQ: ERTS), and THQ (NASDAQ: THQI).

Interestingly, the graph does not include a visual for one of the media's favorite scare stories: gratuitous sex in entertainment. But while the violent video game headlines are often blown out of proportion, there is some evidence that the secret sex game in Grand Theft Auto: San Andreas may have hurt Take-Two's shares in 2005 and 2006.

This goes to show that hype and hysteria-building headlines cannot be considered a reliable source of information when investing.