Should we be wary of influencers and their investment advice? – 17/01/2022 at 10:05

(Photo credit: Unsplash – Jonas Alert)

While social networks have established themselves as an information channel like any other, especially among young people from 15 to 34 years old, many influencers have chosen this way of providing investment advice, market convictions and stock market analysis, for the enjoyment of budding investors looking for information. and good advice, but sometimes at their expense.

What are the different types of influencers that exist in the financial sphere? Can we trust them? All our explanations to make the most of social networks in your investments.

Influencers who give investment advice without knowing anything about finance

Some influencers totally outside the financial sphere sometimes issue investment advice on a cryptocurrency or a stock broker, in exchange for compensation. The best-known example is undoubtedly that of the reality TV star Nabilla Benattia-Vergara who, in 2018, had praised the merits of bitcoin on her Snapchat account before having her braces raised by the AMF .

It should be noted in the past that the influencer also had to pay a fine of 20,000 euros to the General Directorate of Competition, Consumerism and Fraud Prevention (DGCCRF) for deceptive commercial practices related to the promotion on the Snapchat social network of an online business. training site.

Last June, in an Instagram story, Kim Kardashian asked her followers: “Crypto is your thing??”, before advising her subscribers to invest in the cryptocurrency Ethereummax, including however the hashtag # ad that informs its community that the publication is remunerated.

These influencers most often work on the social networks Snapchat, Instagram and TikTok.

So pay attention to the tips and advice issued by personalities who are totally strangers in the field of finance. They will not give you a good tip, but most often they will make money on your back to be paid (heavy) to promote a financial product that, if it were serious and so financially interesting, would not need the services of mainstream influencers.

Influencers so important that their tweets have a direct impact on prices

Second category, and no less, the influencers who are part of the herd and have such a weight that the minimum of their posts on social networks have immediate consequences on the markets.

The best known of these influencers is undoubtedly the head of Tesla and SpaceX. In a tweet from December 10, 2021, Elon Musk said he was “considering quitting his job to become an influencer.”

However, the head of Tesla is already an influencer. Followed by more than 69 million people on Twitter, his tweets have a resurgent impact on the price of his companies or (and especially) on the price of cryptocurrencies that he praises or debunks according to his mood. Therefore, an encouraging comment from the billionaire can take Dogecoin to the top. And when Elon Musk wrote on his Twitter account that Tesla will allow payments in Dogecoin for certain goods offered for sale, the price of the crypto jumped 20%.

But the disparaging comments on this same crypto had already caused the price of the token to the profile dog to fall.

And the same is true for Bitcoin. At the beginning of 2021, the sudden appearance of the single word Bitcoin in Elon Musk’s Twitter biography sent the price of the virtual currency soaring. On June 4, 2021, bitcoin lost up to 8% after a tweet from Elon Musk hinted at a potential breakout from the leading cryptocurrency by posting a broken heart emoji.

Another influencer who can claim to change the price of the most famous cryptocurrency: Cathie Wood, the famous manager of the ARK Invest fund that always bet on a Bitcoin at 500,000 dollars. The stock market influencer followed by more than 1 million followers on Twitter shares his market insights on the popular social network.

These stock market influencers, who are very active on social networks and who sometimes even speak in press conferences, are similar to the old financial gurus like Warren Buffett or Ray Dalio. They no longer write books or letters, but post their convictions on social networks with a strong appetite for Twitter.

Following this type of influencer is necessarily a good idea, as long as you keep the necessary perspective on your publications. This is the point of view of a person (in any case competent) and not an indisputable truth. It may also be interesting to anticipate the market’s reaction to some of his posts from a news trading perspective.

finfluencers who want to democratize and make investing more accessible

We finally arrive at the most interesting category, but also the most difficult to analyze, that of finfluencers who have given themselves the mission of democratizing investment, making it more understandable and more accessible, because among them are hiding real experts but also real scammers.

First, it should be noted that many finfluencers have no real financial background. Very often, they are self-taught who become excellent community managers and project managers who know how to monetize their audience very well. And it’s not so bad because most finfluencers without real financial training have good intentions and following their advice can be a very good thing for your personal finances if they offer free and quality educational and informative content. For example, we can cite financepersonnelle_2.0 on Instagram, which also sells a budget management tool.

What becomes problematic is when the advisor focuses on specific products and assets and followers blindly follow the advice of inexperienced influencers and suffer significant capital losses without even being aware of the risks involved. Because the most damaging is the fact that not everyone warns against the risks inherent in financial investments, especially the risk of capital loss. There are also many who do not warn of the risks associated with leverage, which allows you to invest more than you actually have in your account, but which can also lead to massive losses in case of market reversal.

We can also deplore the sale of courses or training to become financially independent, of financial analysis, of investment signals to buy or sell on such and such asset by individuals who have no experience in finance (study or professional experience). Remember that you cannot improvise as a financial investment advisor (CIF). In France, this profession is strictly regulated (for example: subscription to insurance, membership of a professional association, registration with the organization for the single register of intermediaries in insurance, banking and finance, etc.) and respect a certain number of rules of good conduct. and ethics.

Finally, there are also fininfluencers with or without experience in finance, especially malicious ones, who also take advantage of their popularity on social networks to artificially increase the price of an asset before selling it with a capital gain.

To find out how to optimize your personal finances and start well in the markets, we strongly recommend you to follow the Twitter, Facebook and LinkedIn accounts of Café de la Bourse. If you want to keep informed about major investment trends and market developments, follow the Twitter account of Grégoire Favet, journalist who hosts the Smart Bourse program on the television channel B Smart and the account Twitter of Guillaume Maujean, former finance and markets editor. for the newspaper Les Echos, before joining Brunswick as a consultant.

Image source: Freepik

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