An online trading platform provides the ability to follow other people’s portfolios and a social network to share ideas.
Users of an internet forum managed to move the market on companies’ share prices
Social media platforms enable ‘experts’ to share their investing secrets.
To me, this is irresponsible and dangerous. My concern with the power and influence of social networks like this is that it combines two powerful forces that never make good bedfellows: money and emotion.
Fear & Greed
Our thoughts and feelings are the results of experiences, positive and negative, from our past. The experiences form our belief system, when stimulated they create an emotional response. Our beliefs about money are usually formed in our childhood and have an emotional foundation to them which can be distilled into two basal emotions: fear and greed. Fear around not having enough. The greed of wanting more than we need. When that emotional foundation is triggered in our current selves it can lead to unwise financial decision-making. We may invest in something because we are fearful of missing out (Bitcoin anyone?) or we may want to display that we are part of a group, a tribe.
Those forum members who moved the market on Game Stop shares did so primarily because they wanted to stick it to the wealthy institutional investors (probably born from jealousy) or because they saw the success others were having and wanted the same (FOMO).
But investing is a zero-sum game, there is a winner and loser to every trade. You’ve got to hope you are not the last to the party because it is the Johnny-come-latelies who are left paying the bill. If you want to sell your shares you’ve got to hope there is someone who will pay more than you did for it. It’s called the Greater Fool Theory and sadly for many Game Stop investors, they were the greater fool. The party was over by the time they arrived and the early attendees didn’t care about how much fun others had. See exhibit A below:
Source: Google Finance
The Internet is One Big Golf Club Locker Room
Pre the internet tips were shared and ideas borrowed in the golf club or at the water cooler (and still are), but the internet has extrapolated the sources we can go to get investment ‘advice’. Your money and what you do with it is personal but it should always be done with a clear purpose. What your golf partner, colleague or @InvestmentGuru (name made up) does is for them and them alone. Don’t get fooled into playing someone else’s game. It may work for them. It may not. That is for them to decide and accept, for richer or poorer.
The successful investor does so based upon a plan linked to their life priorities and does it dispassionately with patience and discipline. They are not swayed by internet memes or the counsel of a charlatan.
