Investors need to be picky when looking at tech names: iCapital's Amoroso
TORONTO - When scrolling through financial and investing content on social media, some young people say it can be hard not to get a sense of FOMO - a fear of missing out.
`[FOMO] can feel like you are behind or you're not where you are supposed to be. Like you will never attain X because you didn't invest in Bitcoin [early enough] or didn't invest before you were 26 years old,'' said Crystal Sills, a 30-year-old marketing co-ordinator and parts manager in Montreal.
Experts say that while basing investment strategies on information from social media isn't necessarily a bad thing, allowing FOMO to influence your buy and sell choices increases the odds of making decisions you later regret.
“I often see elements of investing I don't completely understand - like Wealthsimple's DIY platform and other forms of stock trading - and feel like I should participate,'' said Kyle Empringham, a 32-year-old director of social impact partnerships at a tech firm in Victoria.
If you do decide to go against the crowd, there can be lingering thoughts and doubt whether you made the right decision, Empringham added.
Neil Gross, chair of the Ontario Securities Commission's Investor Advisory Panel, said that investing in a popular stock to avoid being left behind is not a new phenomenon, but “social media puts FOMO on steroids,'' which is why we're seeing bubbles in so-called meme stocks such as GameStop, which shot to dizzying heights in early 2021 amid popularity on Reddit and stock trading apps such as Robinhood.
“Those who bought in midway or late in the surge were exposed to huge risk, especially if they borrowed to buy the shares,'' he said. “Many of these folks got caught when the price collapsed. If they thought they were making an investment, as opposed to participating in a market riot, then unfortunately they unwittingly threw their money away.''
However, not all social media has a bad influence on investing, he noted.
“By spreading the word on such things as avoiding high fees and by connecting people to a wide range of information sources, social media can be very beneficial and efficient. But because the information on social media isn't curated or filtered, it also spreads a lot of incorrect stuff, including exploitative disinformation.''
There can be a risk that influencers may intentionally or inadvertently be distorting the whole picture, Gross said.
“They might actually be shilling for some investment promoter without disclosing the relationship. Or they may be unintentionally oversimplifying things.''
For instance, he explained that people on social media may not acknowledge the odds against achieving success or may downplay or not understand the risks involved.
“They may simply be overestimating their investment acumen, mistakenly believing they were insightful and skilled when in fact they just got lucky,'' he added.
Gross cautions investors to always remember that social media is “mostly just gossip.''
“While there's certainly some good advice to be found on social media, an awful lot of what's there is ill-informed speculation and unreliable opinion, often asserted as if it's factual. People might have a hard time telling the two apart. Consequently, investors should be skeptical about anything they see there.''
For investors considering do-it-yourself investing, Gross recommended they explore tools available from credible sources such as investment regulatory bodies, which includes the Ontario Securities Commission.
So far, FOMO hasn't led Sills or Empringham to make any investment decisions they regret.
Sills explained that FOMO inspired her to learn more about certain investing topics, such as cryptocurrency. “I try to count what I have accomplished,'' she said when explaining how she resists feelings of FOMO. “I try to remind myself that there's not a certain amount I need invested by 30 or 35.''
Likewise, Empringham said he's avoided acting on FOMO by convincing himself to do what's right for him and not necessarily following others.
“I try to centre my decisions based on what I need, and less about what everyone else is doing. With that, I find excitement and happiness in doing things that will help me and what I value most,'' he said.
“One of those values is to do what's best for people and the planet. If I don't see that reflected in the investments others are considering, it's often easier for me to feel OK with not participating.'