A new hobby for the rich?
~ YASHVI SHAH
The advancement of data intelligence has given us the capability to analyse vast amounts of data available online. In this era of digitalization, investors have access to a variety of sources of knowledge to make investment decisions – right from news media to independent social media platforms to channels. Social media can always sway investment decisions through the smallest nudge by a prominent personality because the masses trust the decisions made by them; based mostly on their past decisions of investing, leading to their success stories. Financial platforms on the web have become highly effective for investors to easily interact with others and gain insights into market trends. Many brokerage firms have also been offering tools that aggregate information from social media sources to help investors make decisions.
Social media platforms have a strong emotional impact on investors’ psyche. As correctly pointed out by André Kostolany, “Facts only account for 10% of the reactions on the stock market, everything else is psychology.” In simpler words, social media platforms are quicker mediums of spreading knowledge and disseminating data to influence investor behaviour. The correct marketing resources can majorly sway investing decisions. Especially in times of pandemic affiliate marketing has been overwhelmingly effective wherein newbies can learn through online platforms from experts of the markets which has a jargon of its own. Markets are very sensitive, sometimes the patterns can be tricky to figure out since the changes are very versatile. These ways have turned out to be incredibly perceptual for several, especially when there is a threshold of expectations, but the reality speaks differently. Affiliate marketers can leverage this by participating in stock trading affiliate programs. A recent survey shows that out of the total usual investors that use social media most of them follow trading tips of mentors and experts online. These days since trading cryptocurrencies are gaining popularity among millennials, it is predicted that these are going to replace our currency in the future, and this has already been accepted by El Salvador.
Talking of cryptocurrency, recently Bitcoin’s value jumped more than 20% due to the fact that Elon Musk, the world’s richest person, recently changed his personal Twitter bio to #bitcoin, fuelling speculation that he had bought more cryptocurrency and people following his lead did so too. His ability to move the markets through social media platforms also caught sight when the billionaire tweeted “Gamestonk” which in turn led to a surge in the share prices of GameStop. The tweet appeared to help GameStop’s valuation to skyrocket to more than $10 billion. A couple of Reddit users formed “Wall Street Bets” (WSB) aimed to rally the stock, with the agenda of short-squeezing hedge funds who were short on the stock. This means that the ‘Redittors’ purchased the stock just to increase its value and serve losses to the hedge funds. The GameStop stock bubble is not the first of its kind. The early 2000s saw several stock market bubbles of their own. Another example of social media affecting financial markets is when the Tesla and SpaceX CEO appeared to prompt shares in CD Project, which makes the Cyberpunk, a computer game, surge after he tweeted that a new model of Tesla’s Model S Plaid car would allow passengers to play the game.
The video of Cristiano Ronaldo gesturing to drink water by setting aside the bottle of Coke spread like wildfire on social media. It cost the soda company’s share prices to drop by a whopping $5 billion. Another example of social media affecting financial markets is when the Tesla and SpaceX CEO appeared to prompt shares in CD Project, which makes the Cyberpunk, a computer game, surge after he tweeted that a new model of Tesla’s Model S Plaid car would allow passengers to play the game.
However, things are not always as they seem, and certainly not as they should be. Numerous scientific studies have shown that although stock market prices are not random, they all can easily be manipulated. Investing in stocks because of memes has leveraged bets on stock and cryptocurrencies are creating volatility of the stock markets. Social media platforms have become online trading clubs for swapping information and hyping stock prices. In this frenzied environment, naive participants are chasing rewards without appreciating the underlying risks, and some are getting caught on the wrong side of their bets, losing lots of money. We should thus be careful while investing to prevent ending on the wrong side of the sword. Following the herd is not a solution and is against the principles of investing. Regardless of how strong or reputed the source is, investors should always take steps to minimize any possible known loss. One should make it a point to fetch information from an authentic and balanced source, meaning one that is unbiased in communicating ambiguous news about a company or an investment product. Social media platforms conveying financial information to the masses cannot always turn out to be true because the results expected are something that the source believes in – making it very subjective due to the extreme sensitivity of the market. On one hand, these platforms prove to be the best university but on the other, can be perilous enough too. We need to accept the fact that these platforms are a part and parcel of our lives and cannot be escaped. Hence, embracing information wisely is the best way to navigate this.
About the author:
Yashvi is a freshman at IAQS and an actuarial aspirant. She is passionate about the things that inspire and excite her. At Cognizance, she wants to explore her creative side.