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Dispatches Stock Strategies

Clickbait or Cash Cow? The Cost of Following Finfluencers

Financial influencers on social media often give poor advice, prioritizing fame and money over genuine financial education.

by Omar Beirat | August 2024

Financial influencers on social media often give poor advice, prioritizing fame and money over genuine financial education.

A study by the Swiss Finance Institute analyzed over 29,000 tweets on the X platform to determine the impact of financial influencers—called finfluencers—on their followers and to assess the quality of the financial information being disseminated. The researchers categorized finfluencers into one of three groups—skilled, unskilled and “antiskilled” (defined in the study as having negative skill)—based on the value of their financial advice.

In the analysis, 56% of finfluencers were identified as antiskilled, consistently providing advice that results in negative returns (–2.3% monthly). Only 28% were determined to be skilled, generating positive returns (2.6% monthly). Sixteen percent were deemed unskilled, having no significant impact.

Users often follow finfluencers based on personal bias, not financial expertise. This tends to boost the popularity of poor advisers, which can harm investors and distort markets. The research suggests that betting against the recommendations of finfluencers with negative skill could be profitable due to their consistently poor advice.

The trend of social media platforms rewarding the loudest finfluencers, who make extraordinary claims to drive traffic and engagement, poses a significant challenge. This issue is particularly pronounced in the cryptocurrency space, where influencers with little expertise can promote dubious projects, leading to significant financial losses for their followers.

To combat this, social media users need to critically evaluate the quality of financial advice and favor content from knowledgeable sources. By doing so, accurate and beneficial financial information can reach a broader audience, ultimately improving overall financial literacy and reducing the influence of harmful advice. This approach not only helps individual investors make better decisions but also contributes to a healthier financial ecosystem overall.

Source: “The Power of Clicks, Likes, and Shares: Promote the Right Kind of Financial Content,” by Alfonso Ricciardelli, CFA, and Pedram Parhizkari, CAIA; CFA Institute Enterprising Investor blog, May 16, 2024.

Discussion

ROBERT A from NC posted almost 2 years ago:

I'm not sure I'd trust the Swiss Finance Institute to determine what makes a "skilled" investor. I think it's dangerous to blindly follow ANYONE else's financial advice. Investing time (and maybe a little money on reading material) to educate yourself about investing can pay off tremendously. I think it's best to read works from Warren Buffett and others who have made a lot of money in the market (as opposed to those who made their money off of commissions and fees). I highly recommend James Cloonan's "Investing at Level 3" (but once, again, don't follow his advice blindly). And I humbly suggest that buy-and-hold investing, staying the course with good companies (or ETFs) through ups and downs over many years, is the simplest and most effective way to grow wealthy.


BARRY J from TX posted almost 2 years ago:

Once again, I have to bow to Dr. Bob's intuitions. I checked out the Swiss Finance Institute (SFI) website. SFI's goal is to "promotes world-class research and teaching in banking and finance in Switzerland." And how do they do this? In this case, SFI analyzed over 29,000 tweets on X to determine the impact of financial influencers—called finfluencers—on their followers and to assess the quality of the financial information being disseminated. "X tweets" of all sources, really? "Fin-fluencers," really? "Anti-skilled," really? Let's disaggregate this plan to see where it possibly could have gone so wrong. #1. Use one of the most unreliable sources of data on Earth. #2. Invest some new terms. #3. Define 3 vaguely defined and overlapping categories, one of which they may have made-up after consuming too much Peppermint Schnaps -- "Anti-skill," a term than sounds like it includes the ability to injure yourself by walking to the bathroom after drinking Peppermint Schnaps. #4. Sort the "data." #5. Draw conclusions. #6. Go to the bathroom, again. #7. Get this contrived tripe published. #8, Buy more Peppermint Schnaps. Did AAII fall for Step #7? Was Peppermint Schnaps involved? After all "it's just a jump to the left and a step to the right" to get from "fin-fluencer" to "anti-skilled." Or ... are those the steps in the "Time Warp" from "The Rocky Horror Picture Show"? Peppermint Schnaps does strange things to us all. Charles, thanks for the giggle. Giggling is going around these days. I just saw a grown woman giggling on the national news and she didn't look like a fin-fluencer type. Could Peppermint Schnaps be involved somewhere? Cheers y'all all.


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