We’ve seen quite a dramatic shift in the world of finance over the past year or two. Thanks to the GameStop saga, the rise of Robinhood, cryptocurrency price speculation, and the tremendous influence being wielded by platforms like TikTok—it feels like we’re in a completely different universe to where we were just a decade ago.
Meme stocks have dominated the financial headlines—drawing our attention away from traditional valuations, trading advice, and risk management—and pulling us towards a hype cycle where we can make a few bucks and get out before it all comes toppling down.
Instead of making an investment because you believe in its long-term potential, you invest because you think that there are enough other people committed to buying in. You expect the price will go up regardless of the fundamentals.
This is not unique to the world of finance, of course. The power of social media has allowed personalities of all types to build audiences and move public sentiment with a tweet or a post. But when it comes to money—many thought that it would be a breach too far. It seemed comical to suggest that the Wall Street Journal would talk about how professional investors must watch the behavior of influencers in order to understand the latest trends.
But that’s exactly how it has played out.
People with no credentials or experience in the world of finance are giving out investment advice at a rate like we’ve never seen before. This is a positive development in one sense because it’s bringing more and more people into the world of investing that might never have done so before. But there are also significant dangers because these influencers don’t actually have your best interests at heart.
When you’re investing in a meme stock or on the recommendation of a TikTok influencer, you’re hoping to ride the wave and make a quick buck before it all comes crashing down. And while you’ll hear a few success stories of young people who have completely transformed their life with a GameStop investment, you won’t hear the thousands who lost it all because they were left holding the hot potato.
If you want to build genuine financial wealth, you need to work with those whose interests align with yours. Sure, it can be fun to play with stocks as if they’re trading cards, leveraging the power of media and community, but these strategies are simply not robust enough to succeed over the long term. Shrewd investors spend a lot of time researching and understanding what they’re investing in, rather than making impulsive decisions based on the sentiment of a subreddit.
Experience is invaluable in this world. You want to work with partners that have seen it all before—the good, the bad, and the ugly. Real wealth building takes time.
Your money is too important to play these games with it.
Don’t get swept away with the crowd.