TikTok has been the most recent social media company to make a splash and grab everyone’s attention. This creative app has evolved over the years but the latest craze is a worrying one.
Some users have decided to use their platform to provide ‘financial advice’ to their followers. This is a recipe for disaster and I’ll explain exactly why you should avoid social media trading advice.
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What is TikTok?
TikTok is a social media platform where users can record and post short video clips. It’s an entertaining app which has ballooned in popularity over the last year. This has largely been due to the coronavirus pandemic and the fact that a lot of people have more time to create and consume content!
During lockdowns, there have been plenty of different TikTok crazes that have caught on like wildfire.
The latest trend involves influencers giving trading tips. This is worrying for a number of reasons. Recently, the Financial Conduct Authority (FCA) had to step in and warn about the dangers of following dodgy advice on social media.
Why are people giving trading tips on TikTok?
TikTok users have nothing to lose by providing trading tips. If their advice happens to work out, this will increase their following on the platform. If the advice is unsuccessful, there’s no consequence for them. It’s not their money at risk, so they can just rinse and repeat.
Gamblers behave in the same way. When they have a winning bet, they shout it from the rooftops. However, their many losing bets are likely to be swept under the rug.
Because we’re currently in a bull market, many share prices are heading upwards. This means there’s a greater chance of anyone picking a winning stock. So it’s very easy at the moment for inexperienced investors to make themselves out to be the next Warren Buffett.
However, it’s inevitable that there are going to be future stock market drops. It will be interesting to see how many people are giving 15-second bursts of financial advice on TikTok during a downturn or bear market.
Why not follow TikTok financial advice?
The most obvious reason is that a lot of these users have no qualifications and minimal experience in finance or investing.
You wouldn’t buy a house through Snapchat or get therapy through Instagram. So it should go without saying that it’s not wise to get financial advice through TikTok.
Even if you can’t afford a financial adviser, there are plenty of cheap resources available. You can even use something like an investing solutions provider who can help create and manage your portfolio for a low cost.
Is it good if everyone is buying the same shares?
If lots of people are buying the same shares or investments, this demand will increase the price. There’s only ever a limited amount of company shares available on the market. So if someone is telling a lot of people to buy shares in a company, this might temporarily inflate the price.
Often, these people giving the ‘tips’ will wait until the price jumps up and then cash out themselves. This is known as a pump-and-dump. When the prices of these shares inevitably come tumbling down, many people are left with losses.
Simply because of supply and demand, the more people that are doing something, the greater the risk of a bubble. You should try and avoid aligning your investing strategy with crowd mentality.
If a tip is being shared on TikTok, it’s not exactly a secret. By the time you act on these social media tips, it’s likely you’ll already have missed out on any value because so many people are getting involved.
If you invest smartly, you can use all of this distraction to your advantage. Whilst everyone else is looking at suspect TikTok advice, you can find some great buying opportunities away from the crowds.