Getting Investment Advice From Social Media? 4 Wary Concerns & 5 Ways to Take Advantage

By Chika

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Last Updated: November 22, 2021

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The world has never been so interconnected.

As we continue to become more digital, a lot of people are depending on technology to organize their lives and make sense of their surroundings. Social media has become a vortex for many things. People troop to social media platforms to communicate, get information and make friends.

One aspect of social media that is becoming increasingly popular is financial advice.

Platforms such as Reddit, Twitter, and TikTok are now hotbeds for investment discussion. The pandemic left many people jobless or underemployed. Armed with stimulus checks, many looked to the financial markets to boost their income.

Perhaps the most obvious example is the rise of Meme stocks such as GameStop and AMC Entertainment, whose share prices rose astronomically as a group of retail investors banded together to initiate a short squeeze.

Most of the retail investors took a cue from these social media platforms as influencers were urging their followers to get in and ride those stocks “to the moon.”

This boom in retail investing of course led to the exponential increase of investment advisors offering their ‘expertise’ to retail investors. Most of these advisors post their winnings or portray themselves as experienced money managers to people on social media.

While it is great that more people are getting interested in the financial market and are seeking advice, many people may be falling into the trap of over-relying on the investment advice of these social media gurus and not doing their research.

And these mistakes could be costly, as many would be left holding the bag.

 

4 Reasons to Be Wary of Advice on Social Media

1. Everyone is a genius in a bull market

Billionaire Mark Cuban once remarked that everyone is a genius in a bull market.

This is very true. Because the market is in a bullish mode and stocks are rallying, people are easily deceived into thinking that they're very good at picking stocks. This makes them come on to social media to brag about their winnings and gains.

However, have you asked yourself why the buzz drops during a bear market?

Why don’t you get as much buzz or attention from these financial advisors during bear markets? Surely any advisor worth his salt should be able to weather the murky waters of a bear market and offer advice on how to at least protect your holdings let alone make a profit.

2. If it's too good to be true, then it is

There is no investor that has never lost money.

The most successful investors have all been burned by the market at a particular point in time. The fact is that their winnings have been able to overshadow their losses.

As such, you should be skeptical of any social media user or group recommending guaranteed strategies of making money from stocks or other investments.

This is true even if someone is touting their short-term profits, either by showing impressive financial statements or flaunting material wealth that’s apparently the result of their stock market success.

Most of these ‘gurus’ only post their winnings and never their losses. You do not get to see what their portfolio looks like on a red day. If it sounds too good to be true, then it definitely is.

3. You may be a victim of pump and dump schemes

Social media is full of people with nefarious characters who are trying to push an agenda.

There are chatrooms and groups where members collude to whitewash a stock and push its prices up. This is done to lure unsuspecting investors into thinking that the stock is rallying based on genuine interest from investors.

When the stock rallies to the predefined rice target, these members dump their stock on unsuspecting investors making them accrue losses.

Others are influencers who are trying to monetize their followings by accepting payments to promote some stocks or other investment vehicles.

Influencers, such as the D’Amelio family and Tana Mongeau, have started to post paid advertisements on their social media platforms for different digital coins and exchanges.

Kim Kardashian West posted an ad for ethereummax on her Instagram story to her 228 million followers. If someone receives money to promote an investment or asset to you, this is usually a red flag.

4. There are limits to relying on others for investment advice

Investment is a personal journey.

We all have different needs, wants, aspirations and targets. Plus the amount we have set aside to invest differs too. So what works for someone may not work for you.

A middle-aged worker trying to plan for retirement would have a different investment need than a Gen Z just starting out. As such, even though you get investment advice from social media, try to contextualize it to your unique situation. Find out of it works for you.

 

5 Safe Ways to Use Social Media to Get Investment Advice

Though social media is crowded with charlatans posing as trading gurus and investment professionals, it can also be a veritable source for getting investment advice.

You just have to know where to look. Here are some ways of using social media to get the investment advice you need.

1. Follow top analysts and finance websites

One way is by following top analysts and financial websites to gather information on the assets that you should invest in.

Reputable analysts such as Cathie Wood have a strong social media presence and occasionally do videos. Others include Dan Ives and Mark Wilson. The irony is that reputable analysts hardly give stock recommendations, but if you follow them, you can get an inkling on where to invest your funds.

Finance sites such as Yahoo Finance, Bloomberg, CNBC, and Business Insider are also good sources where investors can get information on market sentiment, analyst recommendations, dividends, and the historical performance of stocks.

2. Get the company’s financial reports

Dig through a company’s investor relations page too, he says.

Its annual reports will give you an overview of what is going on with the business and will detail any risks to the business that you ought to know about. Firms often post investor presentations on their sites as well, which give investors insight into where the company thinks their business is headed in the future.

3. Track earnings calls

With the aid of social media, you can have access to the company’s earnings call which would ultimately improve your investment decisions.

During an earnings call, most people focus on just the financial reports. However, earnings calls offer much deeper insights into the company’s performance. During earnings, the company’s management gives an outlook on how the company would perform in the next quarter or fiscal year.

They also shed light on the challenges which the company is facing or anticipates and what management intends to do about it. 

Earnings calls offer an investor a peephole into the mind of the company’s management and how they intend to steer the company. Based on these observations, an investor can also make quality investment decisions.

4. Compare recommendations from multiple sources

Part of the due diligence you have to conduct before undertaking investment is by comparing recommendations from multiple sources.

This would give you a broad perspective and different insights into the financial instrument you want to invest in. It offers you a buffet of opinions and ideas to sift through to make your investment choice.

5. Look for people with a track record

Anyone telling you how to manage your money and invest has to be talking from experience.

Would you trust someone who has never driven to teach you how to drive a car? Definitely not. The same goes for your investments. Anyone who is giving investment advice has to have a track record of making good calls and managing people’s money for at least 15 years.

Nobody would doubt investment advice from Warren Buffett, Charlie Munger, Jeremy Siegel, or Ray Dalio.

Try to ascertain the person’s credentials and past records.

Look up their LinkedIn page and other platforms where you can get information on them. Some credentials to look for are CFA, CFP, CPA, FINRA among others, though this is not a guarantee that the person has performed well over the years. However, these organizations are reputable and guide the conduct of their members.

Know before you invest: Top 7 Red Flags to Help You Avoid an Investment Scam & 4 Ways to Investigate

Final Word

Social media can be described as a marketplace where different sellers are jostling for your attention and pocket.

It can work for or against your investments. To get the investment advice you need, you need to have the patience and rummage through the dirt to find the gold.

Relying on the conclusions of others is not a good way to build wealth through investments. Social media is a vortex of information, as such investors are better equipped to make quality investment choices now than ever before.

However, you have to be ready to put the work in, before it works out. 

Photo by cottonbro from Pexels

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