By Dawn Daniels
As of Wednesday, May 4, 2022, #stockstobuy has 563.4 million views on TikTok and #stocktok has topped 2 billion.
There is an abundance of influencers eager to give their best recommendations, suggestions and guidance. Social media platforms that were once goldmines for how to apply vintage makeup or make DIY slime with your kids have evolved into a one-stop-shop for investing advice. It’s easy to follow the crowd because there’s a level of security knowing you’re not alone in your investment. However, it’s important to remember there are no quick tips and tricks for investing your money. It takes hard work, research and time to land on a strategy that’s right for you and your unique situation.
Social media is just one of many sources that can factor into your decision-making process. So, how should you navigate the overabundance of well-intentioned individuals trending under hot hashtags or with thousands of followers? And where do they fit into the mix with more traditional sources of information? Consider the following steps when building your personal approach to money management.
Step 1: Are you an investor or a trader?
Start by considering your situation. Are you a trader or an investor? The core difference is a trader looks to make regular moves and seeks to make faster money, while an investor plays a long game.
As you determine where you fit in, it’s important to ask yourself fundamental questions like, what are your goals, what are you looking to accomplish and how long can you buy and hold a security? By doing this, you’ll take into account your full financial situation: your income, level of debt, monthly expenses, liabilities and obligations. It will ultimately help you understand how much risk you can take, ie trading, versus how much security you need to establish, ie investing.
Step 2: Build your plan
Once you’ve determined if you’re an investor, trader or something in between, the next step is to build a plan. You’ll need to first understand your risk tolerance and then structure your portfolio accordingly. There are various models that can help you understand the right mix of stocks, bonds and other assets like alternatives such as gold, real estate or crypto, as well as what percentage you should hold long term versus how much you can afford to trade. You know your personal financial situation best, so while there’s all sorts of information out there telling you to buy, sell, hold or avoid, the first step starts with you.
Step 3: Consider your sources
The info landscape is an ever-growing and advancing field. Individual investors have access to more resources and information today than what multimillionaires did 30 years ago. Regardless, investing should be approached with the same mindset as investors of ‘ole from the dark days of the pre-social media era. With so many tools and sources of data available, the opportunity for checks and balances are endless. You can start with an analyst’s report or article from a reputable publication, then access a company financials. Next, you can go social and see what people like you are saying on Twitter or Reddit. There’s also a range of tools and resources like heat maps, institutional tracking, stock screeners, stock comparisons, free investing courses and more. If you have the time, there’s an endless stream of knowledge to consume.
Step 4: Go wide
While many articles, discussion threads and influencers focus on individual assets like a single stock or crypto, consider taking a wider view. For example, instead of looking at one tech stock, go up a level and look at the category. By choosing a few stocks you’re interested in and self-educating on where they started, where they are now and where they’re projected to go in the context of their overall category you’ll gain a better understanding of the markets you ‘ re entering. By taking this step, you’ll understand how a move by Dell can impact the price of Apple or in other cases how macro factors like new regulations can impact an industry.
Now let’s take a deeper dive into digital communities
You’ve swung wide, decided on stocks that spark joy and compared platforms. The grunt work is out of the way and now is the time to head over to your preferred social media platform and watch the top TikTok videos and read Reddit threads. Learn what other individual investors are doing and why.
Some insights you read will be useful information and others will be inaccurate. Internet users are not providing insight with your specific portfolio in mind and broad, general advice will not always serve your investments well. Free “insight” (or a more cynical view, opinions) is not a substitute for hard work when making investment decisions.
Steer clear of taking proactive steps in regard to statements promising a monetary return within a specific amount of time. There are so many factors that determine the price of a given asset on a specific day and without a crystal ball, not even the best investment advisers can promise an “X% return within X number of weeks”. Anything we read on the internet is open to the interpretation of the reader. A clear, educated mind provides an avenue to the most sound interpretation.
Understand the range of an influencer’s influence
Whether you’re an active trader or long-term investor, the media can (and almost always does) play a part in your investment and trading strategy. Stock value and social pressure have a delicate relationship that, used as a tool to generate an educated analysis of the market, could considerably benefit your portfolio.
For example, in May 2021, Swedish vegan milk maker Oatly Group AB (OTLY) announced its plan to go public. Celebrity endorsement of the world’s largest oat milk company by Oprah Winfrey, Jay-Z and Natalie Portman took the news by storm, providing OTLY an overall valuation of $ 10 billion, with Winfrey raising $ 1.4 billion alone in IPO.
OTLY shares were originally priced at $ 17 a piece and rose nearly 19%, closing at $ 20.20 per share officially.
An AP News report from May of last year stated “Overall US sales for dairy alternatives grew 15% to nearly $ 2.2 billion in the 52 weeks ending May 1, according to Nielsen.”In addition to the message of a healthier, more environmentally sustainable milk product, celebrity investors are winning over consumers.
Learning to navigate the weight of a specific source of influence or just the impact of a united general public on the stock market and how it can affect your investments is one of the most important lessons when investing in the 21st century.
In the words of the great Katniss Everdeen, “It must be a fragile system if it can be brought down by just a few berries.”
The Wall Street GameStop saga of 2021 pulled new investors in with the adrenaline and the possibility of destabilizing the stock market, almost completely led by users in a Reddit forum called WallStreetBets. GameStop’s value skyrocketed by over $ 10 billion, just to plummet over 40% the next day and take flight the day after that as trading restrictions were lifted. In this scenario, we saw a microcosm of how stock markets work and the power of collective money. The WSB community acted like a pool and wielded the same power as some of the largest institutional investors. The sheer amount of trading volume the community drove forced the stock to move. It was anomaly.
If you’re a new trader, it could do more harm than good to blindly follow the tips of your favorite influencers. If you want to actively trade stocks, compare your options to find a brokerage with the research tools and help you need. There’s no true substitute for an investment adviser, research and technical tools, but if the idea of monitoring your portfolio everyday sounds about as fun as doing your taxes, you may be better off with a robo-advisor like Acorns, SoFi or Betterment.
The views and opinions expressed present are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.