The Goldfluencers

Amar Pandit , CFA , CFP

Imagine you have discovered gold somewhere, loads of it. The assumption here is it’s legal and you are entitled to mine it (and that you know how to mine it). Without the ifs and buts, simply close your eyes and imagine this. First tell me, how are you feeling? Excited, Thrilled, pumped up. That’s great, this is normal. Second, what will you do next in this situation?

Mine it and take your gold home. Keep mining till you have emptied it. You are also very likely to be secretive about it, so that you don’t attract unwanted attention. And more importantly it’s your business or hobby now. Mining Gold (remove as much as you want). Therefore, you are likely to keep it a secret. Coke guards its recipe ferociously…People like you and me guard their recipes (my grandmother’s recipe). Some parents even keep their children’s tutor a secret.

Now if you are the generous type, I understand you might call a few loved ones (friends and family) and invite them to take part in your bounty. Don’t act surprised. I know people who would do it; I would do it.

But would you ever go and scream on national television that you have found gold and invite more and more people in. I don’t think so, no matter who you are. However, there are many fellows who go on business channels and keep screaming – Look there is gold here. You should take it now.

How generous?

Isn’t this too good to be true?

Yes, it indeed is.

A lot of time this gold is nothing but fake. Most of these people who claim to have found gold (for you) bullshit a lot of time.

This is the only industry where people come and announce on TV that they have found gold while they merrily smile at the camera.

My colleague recently shared a video highlighting how some Goldfluencers cheated or duped people, and it’s not just business channels, social media is full of many such confident people.

A “Goldfluencer” could be defined as a persona, often found on business channels or social media platforms, who entices others with the allure of lucrative investment opportunities. These individuals often use their charm, persuasion, or authoritative facade to present themselves as beacons of financial wisdom, promising insider knowledge or a surefire path to wealth. However, their guidance often glitters more than the actual gold they purport to offer, as they may not disclose the full risks or their vested interests, leading to potential misinformation and, at times, financial harm to their followers. Their influence is golden in appearance but can be misleading in substance.

The landscape of investments is fraught with contradictions and conflicts of interest, especially when it comes to these Goldfluencers (business channel commentators and social media influencers), who can sometimes lead investors astray. While it’s appealing to think that these experts are sharing golden nuggets of wisdom, the reality can be quite different. Often, what’s not said is as telling as the advice that’s broadcast.

Consider the notion of talking one’s book.” It’s not uncommon for commentators on business channels to highlight stocks or assets they’re already invested in, painting a rosy picture of potential returns. The underlying motive? By drumming up interest, they hope to drive up the market value, at which point they may sell off their own holdings, securing a profit while leaving unsuspecting followers to face any subsequent downturn.

Then there’s the practice of “pump and dump,” where influencers may use their sway to inflate a stock’s price through overly optimistic forecasts, only to offload their shares once the price peaks, leading to an inevitable slump that can leave investors holding the bag.

The game extends beyond these tricks. Some influencers may receive compensation for promoting certain investments, creating a veneer of legitimacy to endorse products or stocks that might not be in the best interest of their audience. Transparency is often the casualty in such arrangements, with viewers unaware of the financial ties coloring the (golden) wisdom they’re given.

Moreover, these influencers might also play on the fear of missing out (FOMO). They create a narrative of urgency, pushing the audience to act quickly or risk losing out on a ‘once in a lifetime’ opportunity. This rush can lead to hasty decisions, bypassing the due diligence that should be the bedrock of any investment decision.

It’s essential to recognize that the role of a financial influencer or a business commentator is not to act in your interest. The best part is that they don’t even know you. They are simply doling out prescriptions.  A commentator is not duty bound to you; a commentator’s primary allegiance is not the viewer. This dissonance between the interests of the influencer and their audience is a gap where financial mistakes often occur.

Beyond the outright deceit of “pump and dump” schemes and undisclosed compensations for promotions, there are more subtle ways that business channel commentators and influencers can mislead their audience.

  1. Overgeneralization: Many commentators use broad, sweeping statements that might sound convincing but often lack nuance. They may present investment strategies that work well in one context as one-size-fits-all solutions, ignoring individual investor circumstances such as risk tolerance, investment horizon, and financial goals.
  1. Recency Bias: Some influencers focus excessively on recent performance or trends, leading their audience to believe that what has happened in the short term will continue indefinitely. This can cause investors to chase after “hot” stocks or sectors without proper consideration for the inherent risks or the cyclical nature of markets.
  1. Confirmation Bias: Influencers might selectively use information that confirms their investment thesis while ignoring data that contradicts it. This selective presentation can paint an incomplete picture, prompting investors to make decisions based on skewed information.
  1. Echo Chambers: Business channels often feature commentators who echo each other’s sentiments, creating a false sense of consensus. This can artificially inflate investor confidence in certain investments, creating market bubbles that can burst with detrimental consequences.
  1. Fearmongering or Unwarranted Optimism: Some commentators play on fear, predicting dire outcomes to encourage investors to buy into “safe” investments they promote. Conversely, unwarranted optimism can lead investors into riskier positions without a full appreciation of the potential downsides.
  1. Complexity as a Façade for Sophistication: Complex investment products are sometimes presented as sophisticated and superior. However, their complexity can mask high fees, lack of liquidity, and other risks. The true motives behind recommending these products can be murky, and the actual benefits to investors questionable.
  1. Misrepresentation of Risk: Some influencers downplay the risks associated with certain investments or strategies. They focus on potential returns without providing a balanced view of the potential losses, leading investors to take on more risk than they understand or are comfortable with.
  1. Pressure Tactics: Time-sensitive deals, limited offers, or claims that “spots are filling up” are pressure tactics used to hurry investors into decisions without giving them time to think or research properly. Here is a funny one…An art platform in the US sponsors so many influencers that I have lost count of it…In fact their biggest marketing spend is on paying these influencers…But that’s not the funny part. The funny one is that every influencer writes “There is a huge waitlist to get in. But if you subscribe to my newsletter or give my code, you can bypass this waitlist.”  If everyone can bypass the waitlist, who the hell is in that waitlist.
  1. Hindsight Bias: After an event or market movement, some commentators claim it was obvious or inevitable, implying that they or their strategies can consistently predict the market, which is misleading.

To avoid falling prey to these tactics (and these Goldfluencers), you should:

  • Maintain a healthy scepticism and independently verify the information provided.
  • Understand your own investment goals and strategies, rather than following stuff that may not align with your objectives.
  • Diversify investments to mitigate risk rather than chasing high returns based on tips and rudimentary recommendations.
  • Most importantly, seek the care and counsel of a real financial professional.

Always remember that in the world of investment, if something sounds too good to be true, it probably is. The glitter of gold on television or on social media could well be fool’s gold, dazzling only in the moment before it dulls to leaden reality.