Investing in equities can be a complex exercise, warranting specialized guidance. From where can one get that advice?
Some attempt to do their own research, poring over reams of financial indicators to identify potential winners, while others consult investment advisors and experts with years of experience in the market.
There are also people who look at the movement of celestial bodies or the earthly elements to determine where to put their cash.
And then there are those who turn to social media, scrolling through their feeds to seek out “financial influencers” or “finfluencers” to multiply their their money.
Let’s take a look at that last set of advisors — the “finfluencers” — as there popularity, especially among young investors, has been growing and could supersede that of traditional investment advisors.
Track record
While the idea of investing based on advice from someone on Tiktok appears risky — maybe not as much as investing based on astrological signs — these “finfluencers” have had quite a solid track record in the first half of 2024.
The investment theme for the first half of 2024 was dominated by an outsized focus on the tech industry, especially on stocks that are a part of the artificial intelligence value chain.
Brokerage aggregator site BestBrokers analyzed the 20 most-watched stock-picking videos on TikTok from 2023, that recommended shares that could potentially surge in 2024.
The team then tracked the prices of the recommended stocks from the day the videos were posted up until June 21, 2024. It also calculated returns on a $1,000 investment in each stock or ETF recommended in these videos.
“Our findings show that over 64% of the 87 total stock predictions in these videos came out accurate, including the remarkable rallies of AI stocks such as Nvidia and Qualcomm,” the BestBrokers report from July said. About 36% of the recommendations resulted in losses.
The report said that a majority of the influencers had advised picking stable, blue-chip stocks such as Google, Nvidia and Amazon, something that traditional money experts also advise to people looking for less risky investments.
The most profit that an investor could have generated from a single stock would have been Nvidia, which grew 63.08% in the period surveyed. An investment of $1,000 in the stock would’ve grown to a substantial $1,630.79.
On the flip side, a $1,000 investment into the worst performing stock — New York-listed biotech company Ginkgo Bioworks Holdings — would have fetched a 74.74% loss.
What if one decided to cut the risk by not betting on a single name and, instead, diversified by purchasing all stocks recommended in a single video?
If a person invested $1,000 in every stock recommended in the one video that got the most bets right, the gains would have amounted to $4,860.
However, “[this] would require a $23,000 initial investment in 23 different stocks, some profitable, some not so much.”
On the other hand, putting money into all the stocks recommended in the video that got most bets wrong would have led to a loss of $1,517.
Credibility concerns
Given the aforementioned track record, is following advice proffered by financial influencers a reliable method for growing your wealth?
Experts CNBC talked to do not think “finfluencers” are a sound alternative to professional analysts and brokers.
Gerald Wong, founder and CEO of Singapore investment advisory platform Beansprout said it may not be fair to conclude that these “finfluencers” can be trusted, simply because a lot of their stock predictions were accurate over a short time period. Wong also added that the broader U.S. stock market in general did well during the period of the study.
The accuracy of their predictions is “spurious,” said Jeremy Tan, CEO of asset and wealth management firm Tiger Fund Management. “Furthermore, a single period coincident result does not translate to a definitive conclusion of predictability in the long run.”
Jiang Zhang, head of equities at First Plus Asset Management, said that as these influencers are largely unregulated and have unknown credentials, they could have questionable objectivity.
They could be paid by companies to promote those shares, or might be front-running — recommending shares they own to others with the aim of boosting stock prices and then cashing out — Zhang said.
The motivations of these “finfluencers” could be in conflict with the interests of those who are seeking advice on these platforms, Tan said. “Recommendations or opinions found online could often be biased, unverified and provided by individuals that are not professionally certified or regulated.”
“Very often, insufficient disclosures are provided for the public to discern the independence of such recommendations,” he added.
Investor education
For all their caution against taking investment advice from “finfluencers,” the experts agreed that social media content creators, especially on Tiktok, do help spread financial literacy among younger investors.
Beansprout’s Wong, who was with Credit Suisse for 13 years before founding his investment advisory platform, suggested that Gen Z investors have a “keen desire” to learn more about investing through self directed means, compared to consulting with a financial planner or advisor.
In a survey conducted by Beansprout, more than half of the respondents said that they were not confident about the investment decisions they have made, signaling a dearth of investment advisory avenues.
“We believe this reflects how access to expert investment insights has not caught up with the proliferation of investment platforms and products in the market,” Wong said.
Influencers could bridge this gap by distilling research and content into bite-sized content that is easily relatable and digestible for retail investors, according to Emelia Tan, director of research and financial literacy at the Singapore Exchange.
First Plus’ Zhang said, “compared with traditional financial news media that report mostly factual events, the finfluencers’ investment narrative offer retail investors the most value as it helps the viewers on how to craft an investment view based on publicly available information.”
He does not think that “finfluencers” and professional advisors should be seen as mutually exclusive avenues for investment know-how.
Influencers can be a starting point for investors to get the basics of investing and wealth management, but they should seek professional financial advice from established and regulated financial institutions, given the superior investor protection offered by these institutions, Zhang said.