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By: Sam Instone

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August 7th, 2018

Why investors should be wary of social media

Investment | Financial Education

You can’t get away from social media.

It’s become part of modern life.

But it holds particular dangers for investors.

I have almost 14,000 connections on LinkedIn.

Will this lead people to believe that I’m a good investor?

Probably – according to the experts.

Because of ‘social effects’.

Consider this.

We place more trust in somebody we know than somebody we don’t.

So, somebody we know gives us an investment tip, we’re more likely to act on it.

To believe it.

That’s in the ‘real world’.

But in the world of social media, we’re also connected to many people.

And we ascribe the same values to them.

Our ‘friends’… connections… followers.

All of whom like to talk about their successes.

Rarely their failures.

(We don’t like to advertise our mistakes.)

We are impacted by the information we receive.

We don’t think about the information we don’t receive…

The more connections you have, the more information is spread.

Shared with others. 

Repeatedly.

And even makes its way back to you.

If you trade on information you find on social media, you're effectively trading on bias.

So, be aware of the dangers.

And don’t act on a social media post without first thoroughly checking the facts.

Always go back to the source.

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About Sam Instone

Sam Instone, Director at AES International, is passionate about positive change and ensuring international investors get better results.

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