Unlike almost any other skill, blindly following online advice doesn't seem to work in investing
21-Jun-2022 •Dhirendra Kumar
One of the strangest new words in the world is 'influencer', yet it seems to be a fully formed profession. In its purest form, an influencer is an advertising carrier, just like conventional media. You can pay a newspaper or a TV channel to carry your ad; you can also pay someone with a large social media audience to post something on your behalf. From googling a bit, you can discover that the Portuguese footballer Cristiano Ronaldo, who has close to half a billion followers on Instagram, charges USD 1.6 million for a promotional post. There are many others like him, including top cricketers and actors from India. However, as far as I'm concerned, this is just a variation on the age-old business of celebrities endorsing products in advertisements. The nature of the advertising vehicle has changed, but the rest is the same.
When it comes to savings and finance, influencers are quite a different creature. Mostly, they appear to be people on Twitter, Instagram, and Youtube. They do not represent any business as celebrity endorsers. Some of their motivations are clear, while others are obscure.
The question that some of you must be asking is why I'm writing about this - how does it matter to my readers or me? The reason is that over the last few years, we have moved firmly into a culture of learning new things from such sources. Do you want to start gardening, cooking, hairstyling, or furniture repair? Just google it. You'll come upon people putting up free tips for entire tutorials on YouTube. A lot of them are pretty good for these kinds of activities.
However, there are areas where it does not work well at all. Do you want to learn all about saving and investing? Should you just go to Youtube and type in 'how to invest'? Try it. Take care to do it in an incognito/private window; otherwise, your history will influence the results. Glance over the videos that come up and watch a few. What do you think of the advice that is on offer? The dominant themes seem to be: One, how to pick stocks that will do exceptionally well tomorrow/next week. Two, how to pick stocks quickly that is, one minute or ten minutes or something like that. Three, fake Warren Buffet videos and four, obviously, crypto. What do you think of the quality of advice and guidance on offer? The answer is obvious.
A very interesting thing arises if you do the same exercise for any other area you are familiar with, be it gardening, cooking, woodwork, or whatever. For most other areas of life, watching the videos that just come up in the initial search is good enough for beginners' introduction. In sharp contrast, savings and finance are an utter disaster. You will be inevitably guided towards extreme short-termism, opportunistic punting, or complete fakery as in the Warren Buffett stuff.
One of the reasons seems to be that when the audience does not have an intuitive feel for the subject, the most hyperbolic and exaggerated influencers seem to become most popular. For example, if a gardening video claimed that the YouTuber had a secret technique that would make your tree grow to a full height in one day, then everyone would just laugh. But if an investment video claims to have a secret technique to select stocks that will become 10 times in the next six months - which is as ridiculous a claim as a one-day tree - then many people seem to believe that. Unfortunately, there's no easy solution to this - most people try things, fail and then either learn or just get scared away and never come back.