Most people today are accustomed to seeking out advice online for their problems. You can find out how to fix your sink, dye your hair, or get your baby to sleep through the night through watching videos on YouTube, reading articles, or asking questions on social media. However, there are three fields where only professionals should advise you: law, medicine, and finance. In all three fields, the harm that can come from bad advice is so great that it’s best just to ask an expert. In investing, it’s especially unwise to take advice from online strangers, because they might have an ulterior motive.
On the Internet, No One Knows You’re a Dog
Would you take advice from a 13-year-old child? What about from the CEO of the corporation you’re considering investing in? On the internet, you never know who might be providing the advice you read. Many social media accounts aren’t who they claim to be.
In most fields, this isn’t much of a concern. If some stranger tells you toothpaste helps to get crayon off the wall, there’s no harm in trying. Whether it works or not, you’ve lost nothing. And there’s no real reason someone would lie to you about that. While not all advice is good, most of it is offered in good faith, because it’s not worth anybody’s time spreading lies about the best way to store your celery.
But in finance, you could lose a great deal of money by taking the wrong advice. Worse, there’s a profit motive for people to spread bad advice. Investors make their money by outsmarting the market. That means investors are competing with one another. Spreading misinformation is a common market manipulation strategy. Bad actors can spread rumors that a stock is about to fall, which drives down the price, and then buy it at a bargain. Or they can create a lot of fake accounts to promote the stock in a way that looks organic before selling it off without warning.
Now, there are reliable sources of information online. The online editions of newspapers, blogs of named professionals, and companies with a reputation in finance are all fairly trustworthy. The important thing is knowing where your information comes from. Once you know who’s advising you, you can make an informed choice about whether their advice is any good.
The Example of r/WallStreetBets
One popular place people get investing advice online is the subreddit called Wall Street Bets. This online forum began as a place where amateur stock traders could swap tips. Later, it became the epicenter of the GameStop short squeeze, where individuals bought up so much stock they pulled the share price out of its deep dive. This caused professional traders who had shorted the stock to lose millions, but some individuals in the group made a decent sum of money.
That makes it sound like a good idea. After all, if people made money following the advice on Wall Street Bets, that means you could too, right? In reality, making money on the kind of high-risk trades they advise isn’t so easy. Many who trade this way lose large sums. Plus, the short-term, high-risk nature of these trades can make them so thrilling people become addicted. Instead of investing for long-term stability, they hope to make a fortune in a day. Even when they lose big, they keep hoping the next trade will pay off. Some even go into debt to be able to continue trading with money they don’t have.
Another problem with this site is that posters are usually anonymous. Although some big name investors post with their real names, everyone else is hidden under a pseudonym. It’s impossible to know why they promote the stocks they do. Is it really good advice, or are they secretly engaging in stock manipulation? You can’t know.
Online Cryptocurrency Investors
Another common phenomenon is the way crypto boosters promote their favorite coins on social media. Some are ordinary individuals. Others are celebrities who are recruited by other investors to promote a certain coin. If a popular YouTuber or actor publicly says they’re investing in a coin, that seems to lend it more credibility than when its promoters are all anonymous.
But one has to ask why these celebrities are buying that coin. Are they investment experts altruistically sharing tips with the world? More often, they are paid to promote cryptocurrency. A single promotional video can net an influencer tens of thousands of dollars. But they don’t have the expertise to tell if the investments they promote are sound. Sometimes, they are well aware they aren’t, but the money is too good to turn down.
A common scam runs like this. Developers issue a new crypto coin, claiming it solves the problems of other cryptocurrency or that it allows smaller investors to get in on crypto when they can’t afford Bitcoin. They pay influencers, either in cash or in crypto, to promote the coin. The resulting sales boost the price of the coin as high as it will go. Then, when they feel they’ve made as much on this as they can, they perform a rug pull, selling all their own coins at once. This crashes the price of the currency, leading everyone who has bought it to lose their whole investment.
Following online “buzz” about cryptocurrency may be the worst possible way to invest. If you’re interested in crypto, the wise choice is to find a real expert to advise you. Another option is to invest in a crypto mutual fund, where the actual crypto purchases are selected by experts.
So Where Can You Get Advice?
It’s dangerous out there for an amateur investor. You need reliable advice, but most individuals giving investing advice online are either amateurs as well or dishonest in some way. That’s why you need an advisor who is both an expert and bound by a fiduciary duty to serve your interests, not their own. Real professionals get certifications which demonstrate their training and ethics. We can connect you with the right advisor for you if you contact us today.
