Making finfluencing easier

In a recent column, I wrote about Nassim Nicholas Taleb's idea about how investment advisors should ideally prove their competence to the world. Here's what I wrote: In his book 'Skin in the Game', Taleb has some interesting advice for investment advisors. "Don't tell me what to do. Just show me your portfolio," he says to those trying to advise others about what to invest in. A literal implementation for would-be investment advisors who simply maintain a public record of their portfolio.

I didn't realise this when I wrote that, but in the 'finfluencer' corner of social media, a version of the Taleb idea has been developing for a while. People who claim to give trading advice post screenshots of how much money they are making from their trading. This is, of course, normal for almost any activity on social media and has been going on for a long time. The problem is that screenshots are easy to fake, and unless someone is an expert, it's hard to tell the real trading performance from the illusory. Surprisingly, some people believe these screenshot merchants. Still, I suppose if you can reach tens of thousands or even thousands, then there will be some who are gullible enough or desperate enough to believe anything.

Over time, it became widely understood that screenshots were not believable proofs of trading prowess in any way, and a more authentic method of showing off trading performance was needed. Do note that this disbelief in screenshots came about because many were fake. What many finfluencers showed to the world as their past track record did not in any way match what they advised people to do. This 'problem' has now been solved in a somewhat strange manner. Some brokers and trading platforms have devised ways to allow traders to display trading profits and losses in a verifiable manner publicly. Essentially, traders can generate a link at the trading website, which can be distributed publicly. When anyone clicks on the link, they can see the profit or loss that the trader made. Crucially, before generating the link, the trader can pick and choose what to hide. Time periods, asset type, whether the principal amount is shown or not, everything can be customised.

The result is predictable. The broker-verified P&L appears to have a stamp of authenticity but can be carefully tuned to be just as misleading as the screenshots. In fact, in actual practice, they are more deceptive. That's because an outright lie is better than something that appears true but is actually an obfuscated, half-concealed version of the truth. When a finfluencer posts a screenshot, you know it cannot be taken at face value. However, when the website of a leading broker shows you a P&L, it has the veneer of truth, which makes it a better tool to fool the gullible.

The important question here is why brokerages are adding this feature to their services. Whose need does it serve? Who is demanding this feature? The answer is self-evident. This 'verified P&L' is a facility for people to set up as unregulated, under-the-radar trading advisors using social media. If SEBI is serious about prohibiting unregulated trading advisors (or coaches or whatever they call themselves), then it should look at this verified P&L phenomenon. It could be a good way of chasing down such people.

A subset of people is using verified P&Ls to boast about what they are doing without selling services. Here's a typical example of such a tweet: 5 yrs back, My annual salary was Rs 25 Lakhs. Now my daily SL in a trade on expiry is 25 Lakhs. It's incredible how quickly trading can change your life. Perhaps such people are setting up a reputation for the future, or maybe they are just showing off, which is basic human nature. Either way, it makes no difference.

For someone like me, and I suspect most investors readers of this column, this entire concept of chasing random advisors on the internet to get trading tips must seem like utterly bizarre behaviour. I've carefully used the word trader in this column because no investor would ever do this, and this is a good way of distinguishing traders from investors.

Suggested read: Navigating the paradox of skin in the game