- The 20 most viewed stock picking videos on TikTok from 2023 to June 2024 show that over 64% of the 87 stock predictions in these videos were accurate.
- While experts CNBC spoke to cautioned against taking blanket advice from these “finfluencers,” they agreed that they help promote financial awareness among young investors.
Investing in shares can be a complex matter and requires expert advice. Where can you get this advice?
Some try to do their own research and study tons 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 elements of the earth to decide where to invest their money.
And then there are those who turn to social media and scroll through their feeds looking for “financial influencers” or “finfluencers” who can multiply their money.
Let’s take a look at the last group of advisors – the “finfluencers” – as their popularity is growing, especially among young investors, and they could replace traditional investment advisors.
Track record
While the idea of investing based on someone’s advice on Tiktok seems risky – perhaps not as risky as investing based on zodiac signs – these “finfluencers” have a pretty solid track record in the first half of 2024.
The investment theme for the first half of 2024 was characterized by an excessive focus on the technology sector, especially stocks that are part of the artificial intelligence value chain.
Broker aggregator site BestBrokers analyzed the 20 most viewed stock picking videos on TikTok from 2023 and recommended stocks that could potentially rise sharply in price in 2024.
The team then tracked the prices of the recommended stocks from the day the videos were published through June 21, 2024. They also calculated the return on investing $1,000 in each stock or ETF recommended in those videos.
“Our results show that over 64% of the 87 stock predictions in these videos were correct, including the notable price increases of AI stocks such as Nvidia and Qualcomm,” says the BestBrokers report from July. About 36% of the recommendations resulted in losses.
According to the report, a majority of opinion leaders recommended choosing stable blue-chip stocks such as Google, Nvidia and Amazon, which is also what traditional financial experts advise people looking for less risky investments.
The highest profit an investor could have made on a single stock would have been Nvidia, which grew by 63.08% during the period studied. A $1,000 investment in the stock would have increased to a remarkable $1,630.79.
On the other hand, an investment of $1,000 in the worst-performing stock – New York-listed biotechnology company Ginkgo Bioworks Holdings – would have resulted in a loss of 74.74 percent.
What if you decided to reduce your risk by not betting on a single name, but instead diversified by buying all the stocks recommended in a single video?
If a person had invested $1,000 in each stock recommended in the most correct bets video, the profit would have been $4,860.
However, “this would require an initial investment of $23,000 in 23 different stocks, some of which are profitable, some less so.”
On the other hand, if you had invested in all the stocks recommended in the video, where most of the bets were wrong, you would have lost $1,517.
Concerns about credibility
Given the track record mentioned above, is following the advice of influential financial experts a reliable way to grow your wealth?
Experts CNBC spoke to do not believe that “finfluencers” are a viable alternative to professional analysts and brokers.
Gerald Wong, founder and CEO of Singapore-based investment advisory platform Beansprout, said it may not be fair to conclude that these “finfluencers” can be trusted just because many of their stock predictions were accurate over a short period of time. Wong also added that the broader U.S. stock market generally performed well during the study period.
The accuracy of their predictions is “inaccurate,” said Jeremy Tan, CEO of asset management firm Tiger Fund Management. “Moreover, a single consistent result does not definitively mean that it is predictable in the long term.”
Jiang Zhang, head of equities at First Plus Asset Management, said the objectivity of these influencers could be questionable as they are mostly unregulated and their credentials are unknown.
They could be paid by companies to promote those stocks, or they could engage in “front-running,” meaning they could recommend stocks they own to others with the goal of boosting the share price and then monetizing their holdings, Zhang said.
The motivations of these “finfluencers” may conflict with the interests of those seeking advice on these platforms, Tan said. “Recommendations or opinions found online can often be biased and unverified, and come from individuals who are neither professionally certified nor regulated.”
“Very often, there is not enough information available to the public to be able to recognise the independence of such recommendations,” he added.
Investor education
Despite caution about investment advice from “finfluencers,” experts agreed that social media content creators, especially on TikTok, are doing their part to increase financial literacy among younger investors.
Beansprout’s Wong, who spent 13 years at Credit Suisse before founding his investment advisory platform, said Gen Z investors have a “strong desire” to learn more about investing on their own rather than through consulting with a financial planner or advisor.
In a survey conducted by Beansprout, more than half of respondents said they were not confident about their investment decisions, indicating a lack of opportunities for investment advice.
“We believe this is a sign that access to investment expertise has not kept pace with the increasing proliferation of investment platforms and products in the market,” Wong said.
According to Emelia Tan, director of research and financial literacy at the Singapore Stock Exchange, influencers could fill this gap by distilling research and content into bite-sized pieces that are easy for retail investors to understand and digest.
Zhang of First Plus said: “Compared with traditional financial news media, which mostly report facts, finfluencers’ investment reports provide the most added value to retail investors by helping viewers develop an investment opinion based on publicly available information.”
He does not believe that “finfluencers” and professional advisors should be viewed as mutually exclusive providers of investment expertise.
Influencers can be a starting point for investors to learn the basics of investing and wealth management, but they should seek professional financial advice from established and regulated financial institutions as they offer better investor protection, Zhang said.
