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Business News/ Money / Personal Finance/  Finfluencers: A Safety manual for investors

Finfluencers: A Safety manual for investors

The scam of finfluencers is growing like a forest that has caught fire


Here is a multibagger stock idea’. ‘How I made 50x on this stock’. ‘How to become a millionaire trading options’. ‘Stock trading income of one year trumps your job’s salary for 10 years’. These are some examples of statements used for financial misselling. And financial influencers, or finfluencers, trap you by exploiting your vulnerability and benefit from it.

Let me explain to you how to spot finfluencers. There are three major types of influencers in my view: First are people with no experience in investing, selling you courses, or free videos/content promising incredibly high returns using risky methods; Second is registered advisors who make tall claims about their stock-picking ability and constant display of ‘See, I told you so" (Maine bola tha!). The third is star fund managers or celebrity investors who use social media to “pump and dump" their holdings.

All three types have just one common trait. A large fan following on social media (up to a million or even more.) I don’t mean that one should avoid all social media accounts with a large following. I just want to highlight that just because someone is being followed by a million people, doesn’t mean what he/she says about investing is gospel truth.

Two points that retail investors should never forget: One, “Caveat emptor" is a Latin phrase that means “let the buyer beware." Two, if it’s free, you are probably the product. “Let the buyer beware’ means it is the buyer’s responsibility to do the due diligence before buying any product or service. Here, the buyer is retail investors, who believe that they are buying a free product or service online when a finfluencer is offering them free videos or courses. What retail investors need to realize is that they become products for the finfluencers who get these investors addicted to their content and make money through brand collaborations or commissions on advertisements. Here’s a safety manual with five rules for retail investors to avoid falling in this trap.

Rule No 1: Whenever you come across any financial content, do a background check of the creator. If someone is sharing an opinion on individual stocks in 2023 and you find that he/she had no connection with investing 2-3 years prior, avoid it.

Rule No 2:Check if the person is a registered advisor. Not all unregistered people are crooks but the “no regulatory" environment motivates them to cross the line in quest of followers.

Rule No 3: Investing is a field where you make a lot of mistakes and then learn. If anyone is sharing content only on winners, be sure that he/she is hiding the true picture.

Rule No 4: Registered advisors can also be influencers. Before trusting them, verify them. The best source is talking to a few of their existing or past customers.

Rule No 5: Never fall for the news that mentions a big celebrity investor has bought a stake in a business. It does more harm than benefit to you in the long run. Either do your own independent work or take the help of a trustable registered financial advisor whose interest aligns with yours.

The scam of finfluencers is growing like a forest that has caught fire. Union finance minister Nirmala Sitharaman recently advised citizens of the country to exercise caution. However, she also mentioned that there are no plans to regulate influencers at the moment.

Rather than blaming the finfluencers and the government for all your miseries, it is imperative to do what is in your hands.

Charlie Munger, the vice chairman of Berkshire Hathaway and a close friend of Warren Buffett for over 40 years, says this: Don’t be a victim, be a survivor. It’s not greed, it’s envy that rules the world. Don’t blame anyone. Take charge.

Use the safety manual described above. Don’t limit yourself to only these five rules, add a few of your own. And never feel envious of anyone who claims more earnings with much less effort. Either he/she is a blatant liar or is a case of survivorship bias. And please don’t fall into the lure of finfluencers.

Ankit Kanodia is founder of Smart Sync Services, a Sebi-registered investment advisory firm.

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Published: 03 May 2023, 11:59 PM IST
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