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Apr 23, 2018

The Impact Of Social Media On Investing

by Allan Small

Allan SmallWithout question, the impact on everyday life of social media platforms such as Facebook, LinkedIn, YouTube and Twitter has been profound. Who picks up the phone to wish a friend or family member Happy Birthday, or a colleague congratulations on a career promotion anymore? It’s much easier/more expected to respond to the notifications that come up on your Facebook feed or LinkedIn updates. In today’s digital world, online channels have become the go-to sources for news, travel deals, medical information--just about everything, including, increasingly, investment advice.

Research shows that both individual and institutional investors are turning to social media platforms for information about stocks, bonds, mutual funds, and any and all investment vehicles. Consider this: according to a 2015 study of 250 institutional investors by U.S.-based global investment research firm Greenwich Associates, four out of five respondents frequently use social media platforms at work. Nearly one-third said the information they found impacted their investment decisions. (Source:

Affluent individual investors are even more likely to use the information they find on Facebook, LinkedIn and YouTube to inform their investment decisions. According to a report by Cogent Research, “70% of wealthy investors reallocated investments, or began or altered relationships with investment providers based on content found through social media.”

It’s certainly easy to understand why people are turning to social media as an investing resource. The information is readily available in real time, plus, we’re already on social media anyway. And it allows us to connect with people we wouldn’t otherwise ever meet.

Maybe more important, the information is coming from people who are in our networks or people who are viewed as experts, which builds in a layer of trust that hasn’t been earned. When these “experts” recommend a stock, or make a prediction of where the economy is headed on Twitter, LinkedIn or Facebook, they are influencing their followers and their followers’ followers. But these recommendations and predictions need to be taken with a dose of healthy skepticism.

Step back and consider the source and their motivations. Is the expert really an expert or are they just someone with a big online following? The reality is some experts, even though licensed to sell investment products, should not be called experts. They just don’t have the expertise or track record to justify putting your trust in their judgment. Many rely on others for their recommendations and follow the herd instead of having a true grasp of what’s happening in the markets and within individual investments. As with any profession, there are people who are good at what they do, and people who aren’t. It’s up to you, the investor, to do your due diligence and to vet who you are following, the information they are presenting and to understand their motivations.

Some “experts” (online or off) like to talk up their books, which means talking up investments they hold in order to drive up interest and price so they can then go out and sell it. That’s not always the case but it can and does happen. When I appear on television, radio or in print media talking about specific investments I must disclose if I own them. This transparency keeps the audience informed and takes away any conflict of interest on my part. There is no such disclosure required on social media. Now, these online experts may be recommending good investments, but the investor should understand their motivations and why they are making the recommendation.

Then think about whether the information is right for you and your investment plan. Run it by your investment advisor and get their take on the investment and how it fits--or doesn’t fit--with your financial plan and goals. Even if it did work for someone else, that other person is likely working towards different objectives on a different time horizon and has a different profile risk than you. All these factors have to be taken into account before acting on advice given on social media. For example, if it’s a high-risk investment and you have a medium-risk appetite, then the investment, however good, is not right for you. Just because an expert recommends an investment, it doesn’t mean it’s a good investment for everybody or maybe anybody. Often, when you read about a “good” investment in any media it’s possibly too late to reap the rewards. Everyone weighing in on social media adds to the hype which can easily lead to emotional investing and the behavior you most want to avoid: buying high and selling low.

A critical piece to all of this is to verify the investing information you are receiving. Is it opinion or is it fact? This is particularly important and increasingly difficult today with the volume of information available to investors. While access to information is a good thing, access to too much information that has not been properly vetted is not. Investors are already dealing with information overload in the form of multiple voices with different takes on the same investment. Social media compounds the issue by adding even more voices to the cacophony.

As with any purchasing decision, it’s up to the buyer to be aware and to do your homework. When you’re assessing any investment, regardless of where you learned about it, ask yourself these three questions: Does it fit into your plan? Does it help meet your goal? Does it fall within your risk profile? Any investment you make should fit into your plan and help you meet your goals without you losing sleep at night.

Allan Small is the Senior Investment Advisor, Allan Small Financial Group, HollisWealth®, a division of Industrial Alliance Securities Inc., as well as the author of How To Profit When Investors Are Scared.


This information has been prepared by Allan Small who is a Senior Investment Advisor for HollisWealth®. The opinions expressed in this article are those of the Senior Investment Advisor only and do not necessarily reflect those of HollisWealth. HollisWealth® is a division of Industrial Alliance Securities Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Allan Small Financial Group is a personal trade name of Allan Small.