TikTok’s ‘Finfluencers’ Predict AI’s Big Rise, but Can You Trust Them?

Stock investing can be a complicated task and requires professional guidance, so where can you get that advice?

Some people choose to do their own research by sifting through a plethora of financial indicators to identify potential winners, while others turn to investment advisors and experts with years of experience in the market.

Some people look to the movements of celestial bodies and the elements of the earth to decide where to invest their money.

And some are turning to social media, scrolling through their feeds to find “financial influencers” or “finfluencers” to help them make more money.

Let’s look at the last group of advisors on the list: finfluencers. They are becoming increasingly popular, especially among younger investors, and could potentially replace traditional investment advisors.

While the idea of ​​investing based on the advice of someone on TikTok may seem risky — maybe not as risky as investing based on your star sign — these “finfluencers” have had a pretty solid track record in the first half of 2024.

The investment thesis for the first half of 2024 was focused on the technology industry, specifically stocks that are part of the artificial intelligence value chain.

Securities information site Best Brokers analyzed the 20 most-watched stock selection videos on TikTok in 2023 and recommended stocks that are likely to soar in 2024.

The team then tracked the prices of the recommended stocks from the date the videos were posted through June 21, 2024. They also calculated the returns from investing $1,000 in each stock or ETF recommended in these videos.

“Our findings show that of the 87 stock predictions featured in these videos, more than 64 percent were correct, including impressive gains for AI-related stocks such as NVIDIA and Qualcomm,” a July report from Best Brokers said. About 36 percent of the recommendations lost money.

According to the report, the majority of influencers advise picking stable, blue-chip stocks such as Google, Nvidia and Amazon, which is what traditional financial experts also advise those looking for lower-risk investments.

The biggest gain investors could have made from a single stock would have been Nvidia, which grew by 63.08% during the period examined. A $1,000 investment in this stock would have grown to a massive $1,630.79.

Conversely, if you invested $1,000 in the worst-performing stock, a New York-listed biotechnology company, Ginkgo Bioworks Holdings — a loss of 74.74%.

What if, instead of betting on one stock, you reduced your risk and diversified by buying all the stocks recommended in one video?

If you invested $1,000 each in every stock recommended in the one video with the most winning bets, your profit would be $4,860.

but, “[this] It would require an initial investment of $23,000 across 23 different stocks, some of which would be profitable and some of which would be less profitable.”

On the other hand, if you had put your money into all of the stocks recommended in the video, where most of the bets were wrong, it would have led to a loss of $1,517.

Given the aforementioned track record, is following the advice offered by financial influencers a reliable way to grow your wealth?

Experts CNBC spoke to don’t believe “finfluencers” are a suitable replacement for professional analysts or brokers.

Gerald Wong, founder and CEO of Singapore-based investment advice platform Beansprout, said it may not be fair to conclude that these “financial influencers” can be trusted just because many of their stock price predictions were accurate over a short period of time. The overall U.S. stock market generally performed well during the study period, he added.

Jeremy Tan, CEO of asset manager Tiger Fund Management, said the accuracy of their forecasts was “questionable.” “Furthermore, consistent results over one period do not lead to a conclusive conclusion that they are predictable over the long term.”

Jiang Zhang, head of equities at First Plus Asset Management, said these influencers are largely unregulated and their qualifications are unclear, raising questions about their objectivity.

Zhang said the investors may have been paid by the companies to promote the stocks, or they may have engaged in front-running – encouraging others to buy stocks they own in order to inflate the price and turn them into cash.

Tan said the motivations of these “finfluencers” can clash with the interests of those seeking advice on these platforms: “The advice and opinions found online are often biased, unverified and offered by individuals who are not professionally certified or regulated.”

“Too often there is not enough disclosure to enable the public to judge the independence of these recommendations,” he added.

While experts expressed caution about taking investment advice from “financial influencers,” they agreed that social media content creators, particularly those on TikTok, are helping to spread financial literacy among younger investors.

Beansprout’s Wong, who worked at Credit Suisse for 13 years before setting up his investment advisory platform, suggested that Gen Z investors have a “strong desire” to learn more about investing through self-directed means, rather than consulting a financial planner or advisor.

A survey conducted by Beansprout revealed that more than half of respondents said they lacked confidence in the investment decisions they made, suggesting a lack of access to investment advice.

“We believe this reflects a situation where access to investment professional insights has not kept pace with the proliferation of investment platforms and products in the market,” Wong said.

According to Emilia Tan, director of research and financial literacy at the Singapore Exchange, influencers can bridge this gap by packaging research and content into bite-sized pieces that are easy for retail investors to understand and relate to.

“Compared to traditional financial news media that mainly report fact-based events, financial influencers’ investment stories are the most valuable to retail investors as they teach viewers how to formulate investment views based on publicly available information,” said First Plus’s Chan.

He doesn’t think “financial influencers” and professional advisors should be seen as mutually exclusive avenues for gaining investment know-how.

While influencers can be a starting point for investors to learn the basics of investing and asset management, they should seek professional financial advice from established and regulated financial institutions, given the excellent investor protections offered by these institutions, Zhang said.