Please stop relying on financial advice and investment tips from celebrities.
It seems to me that we’re in a time where a lot of people trust what they hear from celebrities and social media influencers more than they trust experienced professionals. Or maybe it’s more correct to say that many people are influenced by celebrities and social media influencers, but don’t put themselves in a position to be influenced by or learn from professionals.
Consider Where You Get Financial Advice
Dave Portnoy is not a financial guru. Please do not base your personal investing decisions on what he broadcasts over social media.
There, I said it. Someone needed to read that.
The news sources you consume, influencers you follow (on social media or anywhere else), and people you interact with all have incentives that may not be aligned with yours. Consider the incentives of a social media influencer like Mr. Portnoy. He’s trying to entertain you so that he can keep your attention and you’ll spend time on his social media pages, website, podcasts, etc. where he has the opportunity to sell ads, products, and services to you.
Let his messages remain what they are: entertainment.
It’s frustrating to me that so many people would rather try to pick stocks and time the market or speculate in assets like Bitcoin just because a social media influencer told them to do so or because a friend gave them a tip about something. More than likely, that influencer and your friend or family member doesn’t actually have a deep understanding of the asset or company that they’re recommending to you or of financial markets in general. Unfortunately, if you’re listening to them that means that you probably don’t either but their story is compelling enough for you to believe.
Ask yourself why you’re taking their advice. Do you want to make that investment because you understand it and believe in it and think it’s a good long-term hold? Or are you doing it to try and “get rich quick” and/or based on a “tip”?
Ask yourself how much you actually know about that investment, how and why it appreciates, how it fits into your personal financial plan, and how it is going to help you build wealth. If you don’t know the answer to any of these questions, then you should probably think again.
Incentives
Take some time consider another incentive that an influencer who is spreading a message about a financial asset that they want to buy may have. They could be influencing potentially millions of people to do something that they can profit off of it by manipulating the price of the asset.
What if the celebrity had previously bought the asset that they’re talking about but had lost money on it by the price going down and now they are broadcasting on their social media that they’re going to buy that asset just because they think many of their followers would buy into it and push the price up which would allow them to sell at a higher price and get out of it?
Focus On The Fundamentals
People shouldn’t be playing with individual stocks, crypto currency, or whatever else the case may be until they have a solid financial foundation in place. Too many people want to try stock picking or buying the next sexy thing. Unfortunately, many of these people have never learned the basics of how these securities work and haven’t built up their foundations. A lot of people want the get rich quick scheme or would rather follow the hot investment tip that they heard than do the hard work of remaining disciplined about implementing a successful long-term wealth-building strategy.
Get rich quick schemes rarely work and often leave you in a worse position. Long-term wealth-building strategies are proven, although very boring compared to following day trading tips. If you need proof of this, then I recommend listening to the audiobook version of The Millionaire Next Door.
Keep Investing Simple
I don’t often write about investing on this blog because people put too much weight on it when they should be spending more time on their behaviors and decisions when it comes to their personal finances. You don’t need to day trade, catch the hot stock, or get in early on an asset that you think will outperform to be financially successful. The majority of successful investors are those who hold boring, diversified portfolios and remain disciplined in the long-term. It might not be sexy, but it has worked for a very long time.
(As always, past performance is not indicative of future results.)
Play When It’s Appropriate
Some people have an itch that they have to scratch. They won’t be happy unless they can have some money to play with in individual investments. That’s okay, when it’s done appropriately. If you do not have a financial foundation built of a 3-6 month emergency fund in place, high interest debt paid off, appropriate insurance coverages in place, and putting at least 15% (preferably more) of your gross income towards increasing your net worth, then you have not given yourself permission to play.
If you’ve built a sustainable foundation, then you can play. If you have not, then it’s hard to justify doing anything else with your money.
Even when you’re at a point that you have permission to play you still need to be responsible. Don’t play with money that you need. Don’t assume that whatever you’re doing with your play money will make you rich. In fact, assume the opposite. Assume that you’ll lose it all. If you can’t live with that, then don’t do it. If you’re fine with the worst case scenario (losing it all) and it won’t have an impact on your foundation, then go for it.
