Finfluencer: A Safety Manual for Investors

Let me explain to you how to spot fininfluencers. There are three major types of influencers in my view: the first are people who have no experience with investing, selling you courses, or free videos/content promising incredibly high returns using risky methods; Others are registered advisors who make tall claims about their stock-picking abilities and ‘see, I told you so’ consistent performance.I told you, The third are star fund managers or celebrity investors who use social media to “pump and dump” their holdings.

All three types have only one common symptom. A large fan following on social media (up to a million or so.) I do not mean that all social media accounts with a large following should be avoided. I just want to highlight that just because someone is following a million people, it doesn’t mean that what he says about investing is true.

Two points that retail investors should never forget: One, “caveat emptor” is a Latin phrase meaning “let the buyer beware.” Two, if it’s free, you probably have the product. “Buyer beware” means that it is the buyer’s responsibility to do due diligence before purchasing any product or service. Here, buyers are retail investors who believe they are buying a free product or service online, when a The financier is providing them with free videos or courses. Retail investors need to realize that they become the product for the financiers these investors become addicted to their content and through brand endorsements or commissions on advertisements To avoid falling into this trap, here is a safety manual for retail investors with five rules to follow.

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

Rule number 2:Check whether the person is a registered consultant. Not all unregistered people are crooks, but the “no regulation” environment prompts them to cross borders in search of followers.

Rule number 3: Investing is one area where you make a lot of mistakes and then learn. If someone is sharing content only on winners, make sure he/she is hiding the correct picture.

Rule number 4: Registered advisors can also be influential. Before trusting them, verify them. The best source is to talk to some of their current or past customers.

Rule number 5: Never fall for news that a big celebrity investor has bought a stake in a business. It does you more harm than good in the long run. Either do your own independent work or seek the help of a trusted Registered Financial Advisor whose interests align with yours.

Finfluencers scam is growing like a forest on fire. Union Finance Minister Nirmala Sitharaman had recently advised the citizens of the country to be careful. However, she also mentioned that there are currently no plans to regulate influencers.

Instead of blaming the financiers and the government for all your miseries, it is imperative to do what is in your hands.

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

Use the safety manual described above. Don’t limit yourself to just these five rules, add a few of your own. And never be jealous of someone who claims to be earning a lot with very little effort. Either he is a blatant liar or a case of survivorship bias. And please don’t get misled by finfluencers.

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