TikTok financial influencers, often referred to as ‘finfluencers,’ successfully predicted the surge in artificial intelligence stocks. However, questions about their reliability and trustworthiness continue to persist.

FILE PHOTO: The TikTok app logo is displayed in this illustration from August 22, 2022. Dado Ruvic | Reuters

Investing in stocks can be intricate, often requiring expert advice. Where can one find such guidance? Some individuals dive into financial data themselves, while others rely on seasoned investment advisors. There are also those who turn to astrology or natural elements for investment decisions. Increasingly, people are looking to social media, seeking out “financial influencers” or “finfluencers” to grow their wealth.

Let’s focus on these “finfluencers,” whose popularity, especially among younger investors, is rising and may even surpass that of traditional advisors.

Track Record

Although taking investment advice from TikTok might seem risky—though perhaps not as risky as astrology-based investing—these “finfluencers” have shown a notable track record in early 2024. The investment theme for the first half of 2024 was heavily centered on the tech sector, particularly stocks within the artificial intelligence value chain.

BestBrokers, a brokerage aggregator site, reviewed the 20 most-watched stock-picking TikTok videos from 2023, which suggested stocks likely to perform well in 2024. They tracked the stock prices from the video posting dates until June 21, 2024, and calculated returns on a $1,000 investment in each recommended stock or ETF.

Their findings revealed that over 64% of the 87 stock predictions were accurate, including significant gains in AI stocks like Nvidia and Qualcomm. However, 36% of the recommendations resulted in losses. Most influencers suggested stable, blue-chip stocks such as Google, Nvidia, and Amazon, aligning with traditional advisors’ recommendations for less risky investments.

The highest profit from a single stock was Nvidia, which saw a 63.08% increase, turning a $1,000 investment into $1,630.79. Conversely, a $1,000 investment in the worst-performing stock, Ginkgo Bioworks Holdings, would have resulted in a 74.74% loss.

If one diversified by investing $1,000 in each stock recommended in the most accurate video, the gains would total $4,860. However, this would require an initial investment of $23,000 across 23 different stocks. On the other hand, investing in all stocks from the least accurate video would have led to a $1,517 loss.

Credibility Concerns

Given this track record, is following “finfluencers” a reliable way to grow wealth? Experts consulted by CNBC are skeptical. Gerald Wong, founder and CEO of Singapore’s Beansprout investment advisory platform, cautioned against trusting “finfluencers” based on short-term accuracy, noting that the broader U.S. stock market performed well during the study period.

Jeremy Tan, CEO of Tiger Fund Management, described the accuracy of these predictions as “spurious,” emphasizing that short-term success does not guarantee long-term predictability. Jiang Zhang, head of equities at First Plus Asset Management, pointed out that many influencers are unregulated and may have questionable objectivity. They could be paid to promote certain stocks or engage in front-running, recommending stocks they own to inflate prices before selling.

Tan added that online recommendations are often biased, unverified, and provided by individuals without professional certification or regulation. Insufficient disclosures make it hard for the public to assess the independence of such advice.

Investor Education

Despite these warnings, experts agree that social media content creators, especially on TikTok, play a role in spreading financial literacy among younger investors. Wong, who spent 13 years at Credit Suisse before founding Beansprout, noted that Gen Z investors are eager to learn about investing independently rather than consulting financial planners.

A Beansprout survey revealed that over half of respondents lacked confidence in their investment decisions, highlighting a gap in accessible expert advice. Influencers could help bridge this gap by presenting research and content in a relatable, digestible format for retail investors, according to Emelia Tan, director of research and financial literacy at the Singapore Exchange.

Zhang believes that “finfluencers” and professional advisors should not be seen as mutually exclusive. Influencers can introduce basic investment concepts, but investors should seek professional advice from regulated institutions for better protection.

In summary, while “finfluencers” can be a valuable starting point for learning about investing, professional financial advice remains crucial for long-term success and security.