Social Influencers Feed the Robinhood Hunger for Investing 101

(Bloomberg) -- Newly minted day traders have questions. What’s an exchange-traded fund? What’s a value stock? What’s a resistance level?

Errol Coleman is ready with a video explainer. Pointing to a line drawn at the top of a stock price spike, he says, “We already know this is a resistance, because it tried to push up and got rejected.”

Coleman, with almost 158,000 TikTok followers and over 5,000 YouTube subscribers, is one of the growing number of influencers on social media looking to educate rookie day traders.

He’s not an investment professional — in fact, he’s still in college. Financial bona fides are rare among these influencers. That doesn’t mean their information is useless, but it’s nothing like advice from pros who are mining market data with robots. And the dangers of investing don’t vanish just because stocks have staged one of the greatest rallies on record.

Still, demand for trading how-tos is off the charts. TikTok videos under #robinhoodstocks have more than 3.1 million views, and Coleman is near the top of the site’s #daytrading. The senior at Adams State University in Colorado studying business marketing offers explainers on everything from spotting a short squeeze to penny stock trading.

While Robinhood investors have picked some of the biggest winners during the latest rally, study after study has shown that beating the market with an actively managed portfolio is almost impossible over time.

This has not kept plenty of people from diving into the trading pool for the first time. That’s why established financial institutions offer primers of their own. Charles Schwab Corp., for example, explains what an ETF is to help beginners among the 1.7 million people who opened brokerage accounts with the firm in the second quarter of 2020 -- a 328% increase from the same period a year ago.

Wrinkle-Free Advisers

Many young traders are already spending lots of time on social media, so those sites are easy launchpads for searches. And the Robinhood crowd seems to like getting answers from peers.

Ben Pryor, a 22-year-old influencer, said that seeing a young man talk about stocks “makes other people feel like, ‘hey, I can do this stuff too.’”

Pryor, who majored in economics and communications at the University of Connecticut, posted his first TikTok stock explainer during the virus-induced sell-off. He awoke the next morning to find he had 4,000 new followers. Their ranks have swollen to more than 109,000, alongside more than 5,000 members in his Discord chatroom and 1,000 subscribers on YouTube.

One of Pryor’s fans, Sam Masten, a first-year student at North Carolina State University, said that learning about the stock market have helped him become “way more involved in the news and what’s going on in the U.S. than I was before.”

Both Pryor and Coleman are working to hold on to their followers. TikTok was long favored for the greater likelihood of going viral compared with content-saturated YouTube, but uncertainty over the app’s future has prompted both men to beef up their social media identities elsewhere.

Unlike other social influencers, Pryor rarely shares his current stock picks. When he’s asked what the next big stock is going to be, he said, “I tell them, I can’t predict the future -- you’re entitled to make your own decisions.”

Not everyone is equally restrained. That’s a cause for concern for other influencers and traditional financial advisers.

Watch for Snakes

Brad Klontz, a psychologist and certified financial planner with a presence on YouTube and TikTok, has been infuriated by all of the misleading advice he encounters online.

“What I saw was a bunch of people telling people what stocks to buy,” he said in an interview, and this was directed at “young, impressionable, middle-class people who were just like me -- desperate to try and improve their situation.”

One particular danger for uneducated investors is falling victim to pump-and-dump schemes, where a stock’s price is falsely elevated based on misleading information.

John Stoltzfus, chief investment strategist at Oppenheimer & Co., said that he’s worried about the “do-it-yourself” mindset, “especially for people who are novices and don’t understand the ramifications.” He said one-minute lessons can’t approach what investors can get from a financial mentor.

“It’s like a rattlesnake in the garden,” Stoltzfus said. “If there’s a rattlesnake in the garden, you better not go in there barefoot.”

Jerry Braakman, chief investment officer at First American Trust, thinks that social media can be useful in exposing young people to the world of investing. But he warned that traders still need to think for themselves.

One of the problems with all those success stories on Twitter and TikTok, he said, is that “everybody presents the best part of their life and not all the things that went wrong.”

Yet there’s money to be made as an influencer. YouTube ads provide income for popular users. TikTok is not monetized, but brands and apps often pay influencers based on how many new users they bring in. Pryor also sells a $10 educational course.

Coleman said that money isn’t his primary motivation, though he would eventually like to buy better video production equipment. Instead, recalling his days as an 18-year-old who couldn’t get his friends to talk about the stock market, he’s happy teaching because “the more I give, the more I get.”

©2020 Bloomberg L.P.