This blog is a continuation of my previous post, designed to help you better understand finfluencers and spot potential red flags. The red flags are grouped into four main categories:
- What is known about Finfluencers
- How Finfluencers engage on Social Media
- Financial motivations
- Red flags in stock advice
The first two categories were covered in the previous blog. In this post, I will focus on the remaining two. Together, these blogs will equip you to distinguish between finfluencers with genuine expertise and those driven by attention-seeking, helping you make informed decisions about whom to follow.
Financial Motivation
Below are a few pointers to this flag.
Affiliate Links or Sponsorships
- Their content is heavily loaded with affiliate links, promotions, or product placements, or some kind of financial motivation.
- The finfluencer might push paid courses, books, or exclusive services without offering valuable free content as a foundation.
High-Pitch Sales Pitches & Pressure Tactics
- They aggressively promote paid services, such as premium memberships, courses, or coaching, and use high-pressure sales tactics to convince followers to sign up quickly.
- They create urgency with statements like “limited time offer” or “act now before it’s too late,” which can lead to hasty and poorly informed choices.
- They use fear of missing out (FOMO) to pressure followers into making quick investment decisions without proper analysis or sufficient time to think over.
- They often promise that paying for their services will unlock “secret strategies” that can’t be found elsewhere.
Telegram, WhatsApp Groups and Paid Subscriptions
- Some finfluencers run private messaging app groups whereby they, or people they work with, share trading and investment tips.
- This is more common for day-trading finfluencers.
- These groups typically have a monthly cost to be a part of.
It can be hard to verify the reliability of the financial advice given in these groups and they’re run with very little accountability.
Flags in Stock Advice
Inconsistent Advice
- They change their stance on investments frequently, aligning with market trends rather than maintaining a consistent philosophy.
- This month it is Power stocks, then the next it is PSU, later Rail, and Defense etc.
- Most interesting aspect is that as the theme changes or trend changes, they boast about timely exits or successful trades without providing evidence or a clear strategy of how they identified the upcoming change.
Such inconsistencies are misleading and harmful to your portfolio.
Shallow Analysis
(“No Real Analysis” would have been a better heading!)
- The content lacks depth and analysis, providing opinions or predictions without data or well-reasoned arguments to support their views.
- They focus on surface-level insights and readily available public information like the daily stock price movements, revenue, 3 Years Revenue/Sales growth and P/E ratio without digging into the fundamentals of the companies, Management quality, valuation spectrum (Over or Undervalued), investment timeframe (Short or long), investment rationale (Why Invest in that company?) and possible risk in such investment.
- Quite often it is a bunch of stocks with the current theme, “5 stocks from Power Sector”, “10 stocks gaining from EV”, Defense, PSU, Railways etc., with a disclaimer at the end that these are for educational purposes!
Promotion of Penny Stocks
- They frequently push penny stocks, or other high-risk, speculative investments that are not backed by solid fundamentals or research.
- These investments are often highly volatile, low volume and can be easily manipulated, putting followers at significant risk of losses.
- The Small and Micro cap stock mostly find place here
- If these stocks fall, the same influencers might claim they exited at the right time or put-up John Maynard Keynes quote, “When the facts change, I change my mind. What do you do, sir?” as a reason for change of their opinion.
Note:
- This combination of the above three: inconsistent advice, shallow analysis and investing in penny stocks is very dangerous to the followers.
- They constantly emphasize on short-term trading with little regard for long-term wealth-building.
- This promotes a high-risk, high-reward mentality without discussing the associated dangers or diversification strategies.
- Unfortunately, followers pick such stocks without being aware of the risks involved. In case of loss, they would NOT be able to question the Finfluencer, because they protect themselves through disclaimers.
Frequent Legal Disclaimers
- Finfluencers often use legal disclaimers as a powerful way to protect themselves from the consequences of their mistakes, absolving any responsibility toward their followers.
- They frequently include phrases like “this is not financial advice,” “for educational purposes only,” or “not a registered advisor” in their content.
- This behavior suggests they are trying to distance themselves from the outcomes of their recommendations, especially if things go wrong.
- Sometimes, these disclaimers are barely visible, appearing at the end of a video for just a few seconds or as the last tweet in a thread.
- While disclaimers are legally required, excessive use of them may signal a lack of confidence in their advice and an attempt to avoid accountability.
Use of Jargon Without Explanation
- They frequently use complex financial jargon or buzzwords without breaking down the concepts for their audience, making their advice hard to understand for beginners.
- This can indicate that they’re more interested in appearing knowledgeable than in genuinely educating their followers.
Lack of Long-Term Accountability
- They rarely follow up on past recommendations or advice, making it hard to evaluate the accuracy of their predictions.
- If their advice doesn’t work out, they may avoid addressing it, deleting old posts or ignoring failed predictions.
- Many are smart in pulling out earlies posts if they turn out successful
Over Sensational Claims & Clickbait
- They make exaggerated promises of high returns or guarantee success, often with titles like “Get Rich Quick” or “The Next Multibagger.”
- They frequently use the term latest “hot” stocks
- They sound that success in stock markets or picking the next multibagger or getting wealthy is simple or childsplay. The typical statements are “How to easily identify multi baggers” or “making money in stock market is easy” etc. – If it sounds too good to be true, it probably is.
Note: There is difference between “Simple” and “Easy”. To differentiate between both let me put this way. Making money in stock markets are becoming wealthy rests on a few simple strategies. However, they are NOT easy to follow to implement by a vast majority. These click baits sound that it is easy by anyone to do this.
Watch out for the clickbait “Secret”
The word “Secret” is a powerful tool designed to spark and ignite your curiosity and thus enticing you to click on a post or watch a video. Finfluencers often use this word freely in titles like “Secret to Identifying Multibaggers.” However, it’s important to remember that in investing, there are no real secrets. Every known successful strategy or technique around successful investing has already been shared in books or openly discussed by successful investors.
The term “Secret” is simply clickbait. If there were truly hidden strategies, no one would reveal them on social media. Finfluencers frequently claim to have “Secret Strategies” that no one else knows, but such claims hold no substance. It’s in your best interest to avoid these types of posts and focus your time on more credible information.
Conclusion
Building on this blog and the previous one, you are now familiar with four key red flags that can help you protect yourself from misleading or harmful advice. Equipped with this knowledge, you can ensure that you follow only those finfluencers who offer credible, well-researched, and ethical financial guidance.
By remaining alert to these warning signs, you can more easily determine if a finfluencer is genuinely worth following or simply prioritizing engagement and profit over the well-being of their audience. In the next blog, we’ll delve into strategies for finding trustworthy and reliable finfluencers.
Hope you found this blog useful. Do share my blogs with your friends, peers and fellow investors.
Very nice and informative.