Last Updated on March 2, 2023
Social Media has been an integral part of our society. It keeps us updated about various things in our society and on things that interest us.
One of the things that have been prevalent in social media, particularly on Facebook, Twitter, and Reddit, is investments.
However, people must be very careful when listening to investment guides they meet on social media.
This is a reminder to research which investment you want to take so that you will have full responsibility for what you do with your money.
Related: I Unfollowed Most Of My Facebook Friends. Here Are 6 Things I Learned.
Table of Contents
A Brief History of Social Media, Investments, and Losses
In 2021, my social media feed was filled with NFTs and crypto earnings reaching up to thousands of percent gain – now, they are gone, and some are even wiped out.
Also, in 2021, social media was filled with testimonials about people who earned a lot from Axie Infinity – now, they are gone.
In 2019, social media were excited as PSEi approached the 8,000 level again, which was only short-lived due to the pandemic.
In 2018, social media clamored with investors and media as the PSEi reached the 9,000 level for the first time – now, we are below 7,000.
In 2017, Bitcoin was going great and reached the $20K level for the first time – then it dropped, costing millions from its investors.
We can go on and on with how people will go to social media as they earn, encouraging more people to invest, only to realize that they are on the tail end.
So, if you’re basing your investments on social media hype and word of mouth from friends and acquaintances, then you are in for a wild ride.
An Investment’s Popularity in Social Media is a Warning Sign, Not An Opportunity
Now that we have a brief history of how investments and social media correlate as they reach new highs and euphoria peaks, the market starts to drop.
As the legendary investor Sir John Templeton once said, bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria – after euphoria is the start of another market cycle.
Let’s look at the life cycle of the financial markets. We can see that at the bottom of the chart when everyone is pessimistic about the financial markets. Hence, only some people want to invest.
This is followed by skepticism, where only a few people start to invest and position their money. However, most people are still skeptical about how the financial markets will perform, so they wait a little more.
Then as the market grows higher and higher, more and more people start to enter the market, encouraging more people to invest because more people start to increase their earnings.
At this point, even the mainstream media starts to notice the upward momentum and increases the optimism among investors and the general populace, as is shown in the news.
Then as the market reaches its peak, almost everyone is euphoric. The people who are not yet aware try to enter the financial market and test their luck as they read the news and posts on social media.
Unfortunately, when the market is at its happiest and people are celebrating their newfound freedom through investing, that is the time when it is most dangerous to invest because it means that the people who invested early will start to sell their positions and take their gains.
When the early investors and institutions start to sell, the market will begin to go down, leaving the late-comers confused, in denial, angry, and even bargaining.
Remember that the financial markets are a zero-sum game, which means that for people to win, some people, unfortunately, may have to lose.
FOMO and Investing
The Fear of Missing Out (FOMO) is prevalent in our generation, primarily because of social media. This goes beyond our daily expenses and personal, and career goals and even reaches our finances, including investing.
Unfortunately, the people who are victims of FOMO, most often than not, also become victims of the financial markets.
I know many people who started investing when their social media feeds were bombarded by seemingly successful investors on their timelines, saying things like it is easy to get rich through investing and even giving out tips and recommendations. However, what happens next is mostly regret and losses.
A friend once told me to join a certain group on Facebook because their “guru” is an expert in the stock market, and what he recommends “goes to the moon.”
They even have some experiences of ceiling plays or occasions when a stock reaches a 50% gain in just one day.
Knowing well that it is never a good idea to follow social media personalities in terms of investing blindly, I politely declined and tried to do my due diligence. I also told him to be careful with following blind stock recommendations to avoid getting swept. Little did I know that he didn’t listen.
The next time we talked, he was already out of the stock market after the stock recommendation, which is a “basura” or speculative stock that he bought nosedived and lost 80% of its value in just a few days, leaving him in shock because of the sudden fall from grace of the “guru,” along with his hard-earned money.
This may sound hard to believe for some, but for people who have been in the market for some time, this is very common.
A new investor comes into the market full of hope of financial freedom, follows a guru and Facebook analysis, wins some trades, and thinks that the market is easy, then experiences multiple losses, leaving them poorer than they came in.
A few reminders when seeing “new” investments in social media.
1. Do your own research.
The most important thing to remember when investing in anything, especially those you see on social media, is if they are registered with the Securities and Exchange Commission (SEC).
The SEC accreditation is crucial because if an investment is not registered, it is likely to be a scam. You must also check their website to know their main office and see if you can chase the investment account in case of fraud.
On the other hand, established investments like the stock market, mutual funds, UITF, Forex, and other similar investments still require research to know which ones are the best investments to buy, individual stocks to select, and brokers to choose.
2. Be careful with crypto.
Then there is also crypto, which, in recent years, has its ups and downs and are still very volatile. Don’t blindly jump on the bandwagon just because you saw your friends flexing their “gains” that are highly leveraged.
Never rely blindly on social media and hype because you will likely end up on the wrong side of the fence if you do. You wouldn’t like to be in the same boat as those who are “naipit.”
Do your own research and take responsibility for your investments. You can’t blame anyone but yourself if you fall victim to obvious scams.
3. Be critical and ask the right questions.
There are investments in social media that look good and legit, only to find out that they are scams. The problem with this is that people are filled with greed for the potential return that they throw away their logic.
The simple questions to ask yourself whenever you see a new hot investment in social media are how will the business owner earn, how will you earn, what are the risks involved, how the investment works, and so on.
Remember that you should still be critical even if famous people advertise a certain investment. Please think of the FTX bankruptcy and its celebrity endorsers like Stephen Curry (NBA), Tom Brady (NFL), Shaquille O’Neal (ex-NBA Player), and even Kevin O’Leary (veteran investor).
4. Don’t fall for FOMO.
Not because people seem to be earning money from an investment now means that they will continue to gain from it forever.
So, be very careful when the only reason why you invest in that you saw your Facebook friends or Twitter influencers flexing their paper earnings.
Remember that the financial markets run in cycles, and nothing will continue to go up forever. Just look at the crypto market that had strong momentum in 2020-21, only to get wiped in 2022.
5. Know your risk appetite.
Your risk appetite is your capability to get a good night’s sleep even if your investment is falling.
Ask yourself, how many losses can you stomach before you take every cent you put into an investment because you are losing money?
The irony about risk appetite is that many people want high returns without any risks of losing money, which is also why they keep falling into scams.
If you have a high-risk tolerance, go and invest in the equities, but don’t try this if you have a low-risk tolerance because you will lose some sleep.
Social media has evolved through the years from a way to connect with your friends and families to a billion-dollar industry.
However, though it has its positive aspect, it has also been a way for fraudsters and scammers to find unsuspecting potential victims.
So, remember that if you find a “new” investment in social media and the hype increases, don’t touch it anymore because chances are you’re already late and will be a victim of the crash.
Keep safe, and do your diligence.
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