Investing & social media trap - Filtering noise from credible investment advice

Novice retail investors are gullible and thus, become easy targets for self-proclaimed investment pundits on social media. Misleading such investors into investing or selling stocks en masse for market manipulation is a real phenomenon now and the threat is only going to increase.
There is no obligation on the part of content creators to reveal whether they actually have the expertise to don the cloak of a personal finance advisor.
There is no obligation on the part of content creators to reveal whether they actually have the expertise to don the cloak of a personal finance advisor.
Updated on Feb 15, 2022 01:50 PM IST
Copy Link
ByHT Brand Studio

In January 2022, it was reported that the Securities and Exchange Board of India had cracked down on WhatsApp and Telegram groups in which stock-tips were being shared to inflate share prices. The incident served as a reminder that information overdose is a real problem and not every nugget of information that you see on social media is credible.

With an ever-increasing internet penetration in India and the majority of the population building familiarity with all kinds of digital services especially in the aftermath of the pandemic, investment patterns in India are witnessing tectonic shifts. An example of that would be the spike in interest in stock trading and equity investments.

According to a recent report published in the Times of India, Data from National Securities Depository Limited and Central Depository Services, the two national depositories for securities shows that the number of active demat accounts held by domestic individuals in India has shown colossal growth. “While in FY19, active demat accounts grew by 3.8 million, in in FY21 it grew by 14.1 million In the first quarter of FY22 alone, this further grew by 7.1 million, indicating an annual expected growth of at least 28.4 million if this average rate holds up. This exponential growth coincides with the advent of the pandemic and the emergence of state-of-the-art app-based trading platforms such as Zerodha, Upstox, 5paisa and PayTM Money,” the report stated.

This shift in the investment arena can be attributed to multiple factors. Trading, investments and money management apps are aplenty and they have made investments a convenient hassle-free experience without having to involve a broker. Access to stocks, mutual funds, upcoming IPOs etc is just a click away. Thus, investors from various demographics and geographies are flocking to hop on to the investment bandwagon.

Another factor that has catalysed the interest in active financial management is the rise in the availability of personal finance content across social media platforms. Investment gurus and content creators are filling in a crucial gap – investors are not lacking in terms of enthusiasm and the desire to dabble with new investment avenues but financial literacy rates being abysmal in the country, many find themselves unequipped to take confident strides in their investment journey.

While the influencer apparatus and the availability of trading and financial management apps has democratized information access and more importantly, has eliminated the need to find reliable brokers, there is a major pitfall when it comes to consumption of personal finance content on social media. Novice retail investors are gullible and thus become easy targets for self-proclaimed investment pundits on social media. Misleading such investors into investing or selling stocks en masse for market manipulation is a real phenomenon now and the threat is only going to increase.

What makes it harder for investors to sieve credible actionable information from false information is the lack of any existing regulatory framework. There is no obligation on the part of content creators to reveal whether they actually have the expertise to don the cloak of a personal finance advisor. Any layperson with rudimentary understanding of personal finance content can don the cloak of an investment advisor and if such accounts gain a substantial following, it creates the impression among amateur investors that the suggestions being doled out is akin to the Midas touch.

Prerna Choubey (name changed), a 25-year-old chartered accountant based in Ranchi, had a few bad experiences before she realised that influencers can only lead the way to an extent. “I would religiously follow the content posted by some influencers. Their byte-sized videos were fun and easy to comprehend. Eventually I started following more of such groups on other social media platforms and would follow their investment advices to the T. It was only after I ended up losing money that I realised that personal finance cannot be like learning make up through make up tutorial videos on social media – personal finance is an extremely personal journey,” she says.

Choubey narrates her ordeal that led her to wean away from social media content for managing her finances. “I plunged into stocks blindly without even gauging whether I could stomach such high levels of risk and that too as a novice investor. It was only after the experience left a bad aftertaste that I discovered that mutual funds were a better investment vehicle for me. I could dabble in both equities and debt and liquidity was never a problem. Most importantly, I didn’t have to take risks higher than my abilities,” she says.

Anant Ladha, CEO of Invest Aaj for Kal says, “Active monitoring of a portfolio is important for navigating the changing tides of financial markets. Still, it is also essential for individual investors to manage the behavioral impulses of emotional buying especially due to fear of missing out and selling at market jerks that can come from following the market's ups and downs. Investing based on emotion (greed or fear) is the main reason why so many people are buying at market tops and selling at market bottoms. And this complete emotional issue is actually aggravated due to excessive use of social media and getting too carried away with the noise around. We usually try to listen to everyone because we don't want to be alone in a losing battle and reality is the majority of people lose money in the stock market. So, the best solution is to follow rules and a time tested process, follow limited people with whom you can connect and map your investments to your goals. Proper goal planning according to suitability can help you avoid emotional mistakes.”

Key takeaways

- Seeking professional advice from an actual advisor rather than an Instagram investment guru can work wonders for the health of your finances.

- Make it a point to run a piece of information that you may have found on social media through your investment advisor or a trusted family member or friend with sound understanding of the investment game before actually acting on it.

- Individual investors should manage the behavioral impulses of emotional buying especially due to fear of missing out and selling at market jerks that can come from following the market's ups and downs.

- Follow rules and a time tested process, follow limited people with whom you can connect and map your investments to your goals. Proper goal planning according to suitability can help you avoid emotional mistakes.

This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.

SHARE THIS ARTICLE ON
Close Story
SHARE
Story Saved
×
Saved Articles
Following
My Reads
Sign out
New Delhi 0C
Wednesday, May 25, 2022