A decade ago, investment for most people would start with reading newspapers, analyzing information, graphs, etc, and end with taking investment decisions based on all the factors combined. For new investors, investment decisions would often involve seeking advice from friends and family who were in the know-how of the stock markets, mutual funds, and investments in general. With technological advancements, this trend has changed. Today, research about stocks is done based on digitally available information, including social media platforms.
As per statistics, in the last 5 years alone, the social media influencers in finance or ‘fin-fluencer’ community have rapidly grown and created an unmatched awareness among investors.
But, does this signal good news or bad for investors? Here, we will discuss various factors about the impact of social media on investments, including the benefits and drawbacks of social media for investors.
Most communication these days are done via social media, ranging from tweets by company CEOs on Twitter to news shared by influencers on Instagram. Every individual who uses a smartphone today is present on at least one social media channel.
Social media has become so powerful today that it can impact our everyday lives, whether it is about buying a certain cosmetic product or investing in an upcoming IPO. We millennials prefer to do everything online. So, if we are opening a Demat account and investing in stocks through our smartphones, wouldn’t we prefer to know about the ‘right stocks to invest’ on our smartphones?
Did you know
The popular cryptocurrency Bitcoin’s value rose up by 20% to touch $38,566 at one point. This was attributed to a tweet by the world’s richest person, Elon Musk. He had apparently changed his personal Twitter bio to #bitcoin, and this was taken as an indication of him buying a major chunk of the cryptocurrency. Elon Musk can be safely called an ‘influencer’ on social media since his tweets often impact the stock prices of companies that are connected.
Here are the different social media channels that investors use as per their interest areas:
- LinkedIn – preferred by 52% of institutional investors, most of who use the platform for weekly updates.
- YouTube, Facebook – Used by individual investors for information on online trading, learning about investments, etc.
- Instagram – Used by the youth to access easy-to-interpret information on investment avenues, investment trivia, cost-effective investment platforms, etc.
- Twitter – Used by investors for seeking opinions and advice, especially market-specific commentary and to stay up-to-date on market events.
The table below talks about the key benefits that investors can draw from social media and also some of the drawbacks that they must beware of:
|Social media is a quick and easy medium for communicating ideas, thoughts, and important information.||New investors rely entirely on tips shared by social media influencers and avoid self due-diligence.|
|It is easy to use apps for all kinds of investment information at any time and from anywhere.||Social media may share modelled investment strategies that may not work for investors. In investment, the concept of ‘one size fits all’ is best avoided.|
|Social media influencers are companies and individuals who people tend to rely upon for advice and opinions on relevant matters.||Social media is prone to scams and research/news that may not be valid.|
Did you know
As per reports, in the Indian investment scenario, social media scams rose by 156% in recent years and continue to be a medium to carry out malicious activities by fraudsters. 6 individuals were restrained from using social media and fined Rs. 2.84 crores by SEBI. There were found guilty of passing on stock tips via a Telegram channel under the name ‘Intraday Calls – Bull Run Investment Educational Channel’. Their target was to artificially inflate stock prices for quick profits.
Social media as a mainstream source of information
The new generation of investors are exposed to the social world in every aspect of life. With rapid technological advancements, social media is far more updated about the latest happenings that are instantly passed on through engaging content to seekers.
As per a recent study, nearly 84% of investors trust recommendations that come from friends and family as compared to other forms of advertising. As people prefer to invest in what is ‘good’ as per peer review, social media is the go-to platform for most investors.
It is evident that social media has a significant impact on investments and the influence is only expected to grow over time. Today, “likes” are considered important indicators of an investment or organisation’s worth, with people tracking trending stocks every day. However, with all the positives that social media brings, there is also massive scope for manipulation of investment decisions. Investors must therefore be careful while using information or recommendations coming from social media. It is best to avoid investing without sufficient self-conducted research.
Investors must conduct a thorough research about a stock before making an investment instead of only relying on tips. It makes sense to look at the company fundamentals and stock price technicals to minimise the risk of investment.
While some social media posts about investments may be based on research, not all conduct may be reliable.
Many companies use social media to influence investors since it acts as a medium to reach out to the larger mass and pass on any important time-critical information.
Yes, it is risky for investors to solely base their investment decisions based on information found on social media since it may be unresearched or may be fraudulent.
Yes, social media is used as a medium to pass on investment education to a larger investor base, especially the younger generation of investors who prefer easy-to-read and on-the-go information.