Toxic Generation of Investors Trained by Social Media and "Stock Market Experts": Bishwash Parajuli

Article by Bishwash Parajuli

Social media has evolved over the last decade to become an important driver for acquiring and spreading information. One reason for the popularity of social media is the opportunity to receive or create and share public messages at low costs and ubiquitously. The growth of social media usage opens up new opportunities for analyzing several aspects of, and patterns in communication. For example, social media data can be analyzed to gain insights into issues, trends, influential actors many people have been seeking to gain information from the crowd as an additional source to traditional media. The lure of easy money is what attracts people to the Stock market but do they know that these stock investments are considered the riskiest investments all over the world?

People who haven't experienced a single Bull and Bear cycle yet have started being market experts and have even started consultation. Among these are people who post on Instagram, Facebook and conduct live streams on YouTube and give expert advice. I have myself came across a couple of inexperienced experts who charge their viewers money to give their opinion on a particular script. If we dig deep and analyze who are these people then we get three kinds of noise.

- First kind, experienced but has no knowledge of portfolio diversification and money management.

- Second kind is people who have little experience entered the market in the last two years have only experienced upward movement and have no idea what lies on another side of the mountain.

- Third kind is people who are inexperienced or unskilled and have little knowledge of what drives the market.

Many myths are floating on social media that technical analysis doesn’t work in the case of Nepal but that’s far away from reality. Delusion has been created in various forums and groups to mislead newcomers. Many people might not know technical analysis doesn’t give you the one and the only prediction rather it gives you an alternative of what might happen and how to react to each case. In other words, it is a game of putting the probability in your favor.

China’s recent 3 babies policies spiked baby goods, and along with it, baby health advisory companies' share price. That’s how far-sighted people are but we still trust stock tips that promise quick returns and believe in speculation rather than research and study.

What can a newcomer do?

- Don’t trust stock tips that promise quick returns. Do your research before investing. At least, look at the fundamentals.

- Long-term profitability requires positioning ahead of or behind the crowd, but never in the crowd because that’s where predatory strategies target. Stay away from social media groups and chat rooms, where people are less than serious and many of them have ulterior motives.

- Profits rarely come from following the majority of the crowd. When you see a perfect trade setup, it’s likely that everyone else sees it as well, planting you in the crowd, and setting you up for failure.

- Drawdowns are a natural part of the investment life cycle. Accept them gracefully and stick to the time-tested strategies you know will eventually get your performance back on track. Don't try to make up for a losing trade by trading more. Revenge trading is a recipe for disaster.

- It’s natural for people to emulate their financial heroes, but it’s also a perfect way to lose money. Learn what you can from others, then back off and establish your own market identity, based on your unique skills and risk tolerance.

- Losing traders fantasize about the secret formula that will magically improve their results. In reality, there are no secrets because the road to success always passes through careful choice, effective risk management, and skilled profit-taking.

- It is okay to feel good about a trade that’s going your way, but the money isn’t yours until you close out or cover the position Lock in what you can as early as you can, with trailing stops or partial profits, so the hidden hands of the market can't pickpocket your gains at the last minute.

"Blindly following "expert" strategy can seriously mismatch and produce unbearable loss to small investors."

-Rakesh Jhunjhunwala

Knowledge, Discipline and Capital are the foundation of all functional investing and trading strategies. Without discipline, you will be harmed by the risks. These risks include fear, greed, and missed opportunity. Without knowledge, you might be left behind by smarter ones. Only by holding yourself accountable and remaining disciplined at all times will you be able to achieve your investment goals.

Article by Bishwash Parajuli