Should you take financial advice from movies like The Big Short? How about the “experts” on social media? The simple answer is no. That doesn’t mean you can’t find any useful information in movies or on social media; it’s just that when it comes to making financial decisions, they aren’t the best resources. Yet many millennials now use them as sources of inspiration. Yes, it’s fair to say that movies act more as a jumping-off point for most young adults, but some see a movie like the Big Short and think they can become the next billionaire by predicting the market.
From that starting point, a lot of people move into financially focused social media threads. According to statistics compiled by The Guardian newspaper, 40% of millennials and Gen Z “participated in the stock market” for the first time in 2020. Driving this surge in young investors were online communities such as Reddit’s r/WallStreetBets. The Guardian’s article also notes how YouTubers such as Graham Stephan offer financial tips to upwards of 2.8 million subscribers. Finally, views for TikTok videos with the hashtags #moneytok and #stocktock surpassed the 4 billion mark between 2020 and 2022.
Where can you find financial insights?
Are people actually acting on advice from social media? That’s unclear. What is clear, however, is that social media is now awash with financial chatter. Is any of it useful? Perhaps. However, in the world of investments and trading, it’s probably not the first place professionals would go for financial tips. Of course, there’s no denying that increased chatter online has led to increased interest in the financial markets. That’s a positive. The question, though, is where should you go if you want tips and insights?
The first thing to say is that no tips, advice, or insights will ever be 100% accurate or reliable. Investing isn’t a risk-free activity. Everyone has their own tolerance level and the amount of money they can afford to set aside for investments. When we talk about risk, it’s important to distinguish between the general risks associated with trading and personal risk. The former applies in all situations.
The latter is based on your personal circumstances. For example, Person A may be OK risking £100. Person B might be OK risking £1,000. This is a personal risk and something we all have to determine ourselves. What we can’t forget, however, is that there will always be a risk. The value of investments can increase and decrease. But, if you find the right advice and think critically about the investments you make, there’s always a possibility of making a profit. With that being said, let’s look at one of the most common investment options, stocks, and where to find potentially useful information:
Data doesn’t care about your gut feelings
Having a hunch isn’t enough when it comes to investing in stocks. Just because you feel like something is a good investment doesn’t mean it is. The best way to overcome this reliance on hunches is to look at data. Look at a company’s stock price history, its current value, and its financial reports to see what its current position is. You can also use the SEC’s database to look at a company’s accounting history and more.
Always start from the fundamentals
Another potentially useful source of information is a company’s fundamentals. In trading, fundamentals are the underlying financial data from a company, sector, or economy. When you’re learning how to pick stocks, this data can be used to conduct something known as fundamental analysis. It’s called fundamental analysis because the data focuses on the foundations of an asset or market.
It’s not information that relates to market movements. In this sense, you can see the fundamentals as a base from which to base your opinions on stocks, irrespective of the wider context (i.e., the market’s dynamics). To assess a company’s fundamentals, you can look at metrics such as its profit margin, price-to-earnings ratio, and free cash flow.
What is the world saying?
Once you’ve studied the fundamentals and assessed empirical facts, there’s scope to see what other people are saying. Look at the latest news stories and corporate announcements. How are financial commentators and professional investors reacting to these stories? Then, if you want, you can look at what people are saying on social media.
These opinions should be taken as such. However, if you combine them with real facts and think critically about everything you’ve seen, you should have a better chance of making the right moves compared to if you just relied on social media trends.