Don't blindly take the advice of Influencers

Aug 27, 2023

This afternoon, Abhishek Murarka put out an interesting tweet (post) on an Influencer’s investing stance with accompanying screenshots.

The Influencer tweeted in December 2020 that of his disposable income, 40% is channelised towards buying stocks of individual companies, out of which, 25% is in U.S. stocks. He listed Shopify, Square, Zoom and Tesla.

Abhishek noted that the Influencer’s capital on these four stocks would be halved by now. But that would not seriously dent the Influencer’s networth because he has various sources of income and earns substantially well. On the other hand, those who blindly followed him would be in a tight spot.

The market regulator, the Securities and Exchange Board of India (SEBI) has acknowledged the danger of individuals blindly following advice on social media.

Only 27% of Indian adults – and 24% of women – meet the minimum level of financial literacy as defined by the Reserve Bank of India. (source)

According to a survey by S&P, more than 75% of Indian adults do not adequately understand basic financial concepts. The gap is more when it comes to women, standing at 80%. (source)

I remember coming across a Twitter Space in June 2021 on “Basic Financial Advice”. On joining, I saw that the one answering the queries was an individual who was acutely unaware of finance.

I could not understand why he was holding a space to advise people on their finances. He had no authority or knowledge on the subject. However, individuals trusted him because his follower count was extremely large.

Here is a sample of how he tackled the questions.

Q: Should I invest abroad?

His take: Unnecessary. Indians should stick to Indian stocks, after all, we know our companies better. Indians are just getting swayed by tech stocks like Apple, Alphabet and Facebook. The US market has only put up such numbers over the past one year.

Why he was wrong:

He was unaware that the US has experienced its longest bull run that began in March 2009. It was not a 12-month return by which people were “getting swayed”.

He limited the investing universe to the US market. Global investing is not restricted only to the US market.

Within the US market, it is not only FAANG stocks. Individuals may also want to invest in Nvidia (artificial intelligence), Home Depot, Starbucks, Coca-Cola, Tesla, BlackRock, and so on and so forth.

Investing abroad is an excellent form of diversification. Diversification is measured across numerous dimensions: assets, stocks, industries, sectors, strategy and geography. Global investing allows you to get exposure to sectors that are not publicly listed in India; mining stocks and electric vehicle batteries, for instance. India corners just 2.5% of the global market cap. An investor focused only on India is missing out on some really good investments.

Q: How must I convince my parents to invest in equity?

His take: There is no need for retired people to invest in equity.

Why he was wrong:

Investors must have some portion of their portfolio allocated to equity to beat inflation.

If an individual retires at the age of 60, chances are she may live up to the age of 85. So her portfolio must be able to sustain her for 25 years! The portfolio needs equity to beat inflation and provide capital appreciation. Hence, a portion of a retiree’s portfolio must be in equity, or at least a hybrid product.

Solely relying on Social Media for financial advice is disastrous for your financial health.

Social Media could be Twitter/X, Tik Tok, Quora, Reddit, Instagram and Facebook. Even if the advice is not deceitful or terrible, it can be very misleading.

  • Not everyone is equipped to tell others what to do with their finances, even if they think they are.
  • Just because an individual is an influencer in one field (actor, singer, political analyst) it does not mean they have any sophisticated knowledge of personal finance to guide you.
  • An opinion is put forth with a great deal of confidence doesn’t make it right. I once told an individual on Twitter that he must have a fair value estimate for his stock to decide whether it is overvalued or not. A non-finance handle jumped in to say that valuation is a dead concept after 2008. He got a few “likes” for that tweet.
  • The person doling out the advice is not in the same situation you are in. What worked for her might not work for you. The financial resilience of each family differs. People who live paycheque-to-paycheque have different circumstances from those who have a tidy sum stashed away. Some families are focused on survival, and that requires a different mindset from thriving.

Everyone’s story is different. Some are motivated by luxury, others love a good bargain. Some are motivated to save, others live for the moment. Naturally, the advice to each will differ.

Align your money with your goals. Blanket rules thrown around may not work in your situation. Personal finance is very nuanced.

As Abhishek Murarka noted, a Finfluencer is not necessarily a financial expert. How many of them have an indepth understanding of stocks? Do they read annual reports and balance sheets? Do they analyze the numbers? Do they study company moats? How well versed are they at technical analysis and trading, and how long has been their trading experience?

Next time you are swayed by someone on social media, answer these questions before you make a move.

  • Am I feeling pressured into buying a fund or a stock?
  • What is the reason I am investing? Do I believe it is a good fit in my portfolio or am I doing it because I don’t want to miss out on what’s happening?
  • Do I understand the investment?
  • If it is a stock, has it already skyrocketed in price?
  • Does it feel like a huge gamble? Will I struggle financially if I lose money?
  • Is the claim fantastical? Does it promise to double to triple my money in a short period.

Larissa Fernand is an Investment Specialist at Morningstar India. You can follow her on Twitter.

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