The pandemic has boosted the popularity of apps like TikTok, Discord, Telegram and Signal. But alongside their soaring popularity are the influencers making wild claims of economic success. With youngsters out of work or struggling financially, the appeal of making extra cash on the side has never been more prevalent and these influencers are racking up new subscribers at a phenomenal rate.
The S&P 500 enjoyed an unexpected bull run in 2020, proving many of these influencers right in their predictions. Success breeds success, encouraging more followers. The result is an echo-chamber environment where their narrow views are rewarded. Seeing positive returns encourages them to invest more, and the sheer scale of agreement and additional investment creates a self-fulfilling prophecy. The vast number of retail investors buying into the hype in turn boosts the share prices of these popular stocks far beyond fair value.
Following friends
Influencer encouragement, combined with the onslaught of commission-free brokerages which allow the purchase of fractional shares, are having a wild effect on stock prices. Retail investors are lapping up this opportunity to invest small amounts of money buoyed by the reassurance of confident personalities.
Trading apps like Robinhood and eToro let others see your trades, encouraging friends to copy one another. Those influencers that establish a good record with legitimacy in their trades see their followers soar and can earn commission off the back of this.
Hot stocks hyped by influencers
Hot stocks that these groups love to talk about include electric vehicle favourites Tesla and NIO, Palantir and Airbnb (NYSE:ABNB). The cryptocurrency bull market has fed off this kind of frenzy, sending Bitcoin and Ethereum rocketing and XRP into a tailspin. While some of these self-appointed influencers could be legit and offer an insightful education to the otherwise ill-informed masses, many of them are just winging it and enjoying a run of luck at the top.
It’s not just stock market investing and day trading that’s being promoted and hyped on these channels. Influencers are giving out financial advice, tips on making money through dropshipping, affiliate marketing, house flipping and a multitude of other potentially profitable schemes.
Risky business
Hot stocks that these groups love to talk about include electric vehicle favourites Tesla and NIO, Palantir and Airbnb (NYSE:ABNB). The cryptocurrency bull market has fed off this kind of frenzy, sending Bitcoin and Ethereum rocketing and XRP into a tailspin. While some of these self-appointed influencers could be legit and offer an insightful education to the otherwise ill-informed masses, many of them are just winging it and enjoying a run of luck at the top.
It’s not just stock market investing and day trading that’s being promoted and hyped on these channels. Influencers are giving out financial advice, tips on making money through dropshipping, affiliate marketing, house flipping and a multitude of other potentially profitable schemes.
The Barstool Sports effect
Penn National Gaming (NASDAQ:PENN) saw its share price rocket 230% in 2020, not least in part thanks to Barstool Sports founder Dave Portnoy, who continues to ramp the stock via his Twitter feed and live stream videos. Penn bought a 36% stake in Barstool Sports early in 2020, so it really pays for Portnoy to see it do well.
Despite his ‘Davey Day Trader’ moniker, he always makes it clear he’s no professional day-trader and to take his views with a pinch of salt. That doesn’t stop people getting on board though, particularly as he’s a highly regarded personality in sports betting and gambling communities. Many people that would ordinarily watch and gamble on sports were left bored as lockdowns set in and Portnoy was there to entertain them with a new and exciting foray into stock market day trading.
This trend of hyper-inflated encouragement pushed Airbnb to its eye-watering valuation at initial public offering (IPO), likewise for DoorDash (NYSE:DASH). Both companies are since trading far below their debut price, causing Roblox to take flight and opt for a direct to market listing instead of the IPO it had planned.
Is a 2021 stock market crash imminent?
The scary thing for the uninformed investor is that many now fear the US stock market is teetering desperately close to the top of its bull run. If the dotcom bubble of the 90s is anything to go by, then signs are all around us of a serious correction in sight. Back then chat rooms were filled with confident investors egging each other on sure they were going to make millions. The tribal hype going on in the social corners of the internet is eerily reminiscent of this time and potentially a ticking time bomb.
For those that are ready, it will provide a fantastic buying opportunity to snap up overpriced stocks at knockdown prices and get invested in the future stars. However, for many of those riding the influencer wave, an increasing chance of heartache lies ahead. No matter how experienced an investor, it’s vital people always do their own research rather than readily follow the crowd.