Scottish Investment Trust : The rise of Pop Investing culture

There's no ignoring the rise of influencer culture - even for those people who have no desire to keep up with the Kardashians, or watch K-pop on TikTok. What's interesting, however, is that influencers are branching out from the realms of entertainment and fashion into the world of personal finance and investing. Put simply, a new generation of self-appointed pundits is giving financial advice on social media to attract followers and income.

While the democratisation of investing is a positive, the way in which investment ideas are conveyed through online social channels is not always comprehensive. Social platforms' algorithms favour short and sharp messages from charismatic presenters highlighting all that's appealing or trending. So the words 'safe', 'guaranteed returns' and 'instantly' have entered the jargon commonly used among millennial and Z-er investors.

According to a recent survey by Charles Schwab, 15% of participants in US markets have invested for the first time during the last year. Government-fuelled stimulus allowed stockmarkets to stage a strong recovery from the lows of early 2020, presenting new investors with the false impression that making gains is always this 'quick' and 'easy'.

The draw of the crowd

Of course, even professional investors aren't immune to herd behaviour, but they are at least educated on the risks. Having seen the side-effects of crowd mentality, asset booms and busts, they also know how human emotions can influence investing and more than try to stay dispassionate. Experienced investors are also more likely to have a defined 'sell' discipline, often outlining in advance the circumstances that would trigger a sale.

These are important considerations that may not always be given thought by day traders using platforms such as Robinhood. The very name is predicated on taking money from the rich to give to the poor: a clear play on investors' emotions. It taps into the human psyche - they too can access a service that's usually seen as reserved for the well off. Such platforms are adept at selling themselves to new audiences that are more at home with YouTube and TikTok than the FT, with users sometimes investing student loans rather than pension pots.

Investing time behind the scenes

Analysing prospective investments is not glamorous work. It involves scouring the company's financials - looking at cashflows, profits and the ability to pay dividends among others. Then there's qualitative research - investigating or meeting management and examining how stakeholders such as employees or the supply chain are treated. It's essential background data, but probably wouldn't make a riveting TikTok video.

When an investment is chosen by word-of-mouth on social media, relying purely on an exciting story, it's equivalent to gambling on a horse that has an 'interesting name'. It might be a winner, but without looking into the fundamentals or its long-term prospects, it is effectively a punt.

Instead, there's no better way to start investing than learning about the essentials first. And there's nothing wrong with using the innovative apps and tools available - far from it. However, it's vital that choices are researched thoroughly, weighing up the pros and cons of a potential investment before it is made. So it's not just a punt, but a decision that can prove financially rewarding into the future.

Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations.

Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this article should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.