This year has seen a spike in tweets and messages from various industry-wide influencers that have directly or indirectly impacted the share prices of various companies. The most talked-about and attention-seeking incident is Elon Musk casually tweeting, an 11 character tweet: “Gamestonk!!”
GameStop Corp. shares saw a skyrocketing increase of over 150% and caught curiosity and scrutiny. Nothing but this small almost meaningless tweet from Mr. Musk and a link to one of Reddit’s WallSteetBets Forums could rationally explain the price soar.
(Source: Yahoo Finance; Tavaga Research)
As the conflict went viral, additional investors bought into the company fuelling its rapid rise in market value, disastrously betting against the large investors. The controversy and drama around GameStop and several other shares have drawn attention from governments and regulators across the globe.
It is no new story that influencers and industry leaders like Mr. Musk, Oprah Winfrey, Cathie Woods, and likes have a mass devoted following, and any comment or communication in any form from their side can have ripple effects. Some comments can be as dangerous as shifting the economical dynamics of the market, while some may help save a company like the French company SEB and Weight Watchers.
The background story
Couch-surfing investors especially during the pandemic with pink slips and pay cuts, the free trading, and low commissions platforms have seen a sharp rise. According to reports by the Securities and Exchange Board of India (SEBI), around 10 million new investing or DEMAT were opened in India last year.
(Source: SEBI; Tavaga Research)
Given the lockdown restrictions and pandemic scares, people were stuck at home with limited income and extra time in hand. The release of the series on Sony Liv, Scam 1992 was an additional inspirational push in the already changing investor scenario in India.
The growing influence of social media
Now that people had money and time once the pandemic started to settle its dust, they need instruments to learn and manage their money. It was natural that youtube or a frenzy google search would come to the rescue. This click of a mouse is how these casual internet surfers become first-time investors by finding innumerable “how-to guides” and social media “stock” or “financial” influencers.
(Source: Youtube Statistic, Tavaga Research)
For first-time investors or beginners, social media network channels like Youtube and Instagram were game-changers. It should also be noted that there is also a significant hike of investors from Tier II and Tier III cities in India, following the internet boom and cheaper data plans. The financial education and investing advice from social media channels are inexpensive and help them break down the industry jargon.
With social media at easy disposal, available at all hours of the day an investors’ investment skills and understanding have lost their touch and charm. It has never been this easy to pour money into the stock market. The appeal of these social media influencers is increasing in finance and investments, not because of their credentials or experience but because they demystify the jargon-heavy industry and make investments as easy as making a salad following a video.
(Source: ThinkwithGoogle2019; Tavaga Research)
An age-old idea
While the idea of social media influencers may be something specific to this millennial but the idea of market influencers inst new at all.
The older generation, without the internet and social media but with the rise of the wall-street witnessed something very similar. The prominent writers and thought leaders like Peter Lynch, Warren Buffet, and likes would absorb and soak in all the shareholder letters, prospectuses, book recommendations, and economic policies. These leaders would later then make speeches, write essays, and comprehensive books to give the people the eagerly waited insight into wall street. The new investors would replicate the investment strategies by the star investors.
Following the growth and popularity of business news, written journalism, and internet in the recent times there was and is a new wave of influential figures.
How to be penny wise
The positive influence of social media in terms of its learning and making the globe truly globalized should not be discounted by the negative and coercive factors of the same.
An investor should always be open to learning and experimenting with new ideas but to follow a tweet or a string of comments made by an influential personality blindly should be strictly avoided.
Social media, its usage, and influence should be restricted to learning and not be substituted as investment advisors.
Disclaimer – The above commentary is for educational purposes only.