This should go without saying, but I’ll say it anyway.
Don’t take financial advice from TikTok.
Don’t take financial advice from Reddit.
Don’t take financial advice from Facebook, Twitter or Pinterest.
As our favorite Brooklyn-born former hedge fund manager, Charles Mizrahi, would say: We’re not speculators, we’re investors.
And taking advice from a post written by someone called “PeanutCrapper69” is not investing. It’s speculating.
Sure, it’s fun. Who doesn’t love to make a few bucks and be part of the moment?
But if you’re betting your rent money on failing companies like Hertz or GameStop, you’re not being an investor.
If you’re dumping your savings into bitcoin after an Elon Musk tweet, you’re not being an investor.
If you believe that anonymous posts, with no credentials or backup, must be true simply because they’ve been posted on Reddit, Facebook or wherever … you already know. You’re not being an investor.
You’re being a speculator.
Rule No. 1: Never Risk What You Can’t Afford to Lose
We won’t recap everything that happened in the GameStop saga, but suffice it to say that many traders — who should’ve known better — seem to have forgotten rule No. 1. That even includes some experienced hedge fund managers.
These short sellers — which, again, included experienced hedge funds — lost nearly $13 billion on GameStop, according to analytics firm S3 Partners. One of them, Melvin Capital, received a $3 billion cash infusion in the middle of all this.
Trust me — you don’t want to be like them.
Investors who jumped into the other side of that squeeze had the chance to make a quick buck. But the shares of GME’s business have fallen since then, and those speculators are learning the same lesson.
Losing never feels good, but hopefully it’s a lesson that they don’t have to learn again.
Here at American Investor Today, we always make clear that we’re investors, not speculators. When readers join any of our premium services, we’re clear that we don’t recommend our readers put too much money into any individual trade.
Rule No. 2: Never Take Advice From Someone Who’s Profiting From the Investment
Like other social media apps, TikTok’s user base has exploded during the pandemic. The video app’s monthly active users are up an incredible 800% since 2018 — to 100 million monthly active users.
All those new eyeballs seem to be gravitating toward financial advice while they’re stuck at home.
The problem is that they’re getting conspiracy theories and risky trading recommendations in the mix … everything from “put zero money down on your mortgage” (debatable) to “always short the stock market” (dangerous).
And some of the advice is coming from people who are profiting from the messages. They’re posting screenshots of their brokerage accounts saying that if viewers just buy this same stock, they can make millions. There’s no research or data to back up their claims. It’s just a screenshot and a call to action.
This sounds an awful lot like an old trick called “pumping and dumping.” Someone simply buys a stock, and then goes and tells other people to buy the stock. When the price shoots up, the huckster then sells their shares for more than they’re worth and walks away. The others who bought are left holding the bag as the stock falls back down to earth.
So, when you’re looking for financial advice, you need to make sure that the person recommending stocks to you is not taking part in a scheme like this.
At Banyan Hill, all of our editors are committed to giving our readers quality research they can trust. And their research needs to stand on its own.
That’s why they’re not legally allowed to take positions in — or profit from — any of the stocks they recommend. They’re only making money if their readers make money.
We doubt TikTok protects its users in that way.
And that brings us to the third rule…
Rule No. 3: Do What’s Best for Your Portfolio
Does that kid on TikTok know what he’s talking about? Does PeanutCrapper69 have a history of making stuff up on the internet? Does zero money down on a mortgage mess up your plan to retire?
Only you know your financial situation.
We often say that we’re not legally able to give personalized advice, and that’s for a good reason. Everyone’s situation is different. Anyone who’s touting the miracle cure for financial woes can’t know your personal financial status. What they recommend could be woefully wrong for you.
As Charles Mizrahi often says, investors should only take positions in companies that they believe in, understand and feel comfortable about. If they feel one of his recommendations isn’t for them, there’s always the next opportunity.
That’s one of the main reasons we feel so strongly about educating readers in American Investor Today. We want you to have everything you need to make intelligent decisions with your own money.
We only make money if you make money.
And we hope that we’re helping you make the decisions that are right for you.
We want to hear from you… Have you been putting our education to good use? Email us at AmericanInvestor@BanyanHill.com and let us know whether you prefer investing or speculating.
In the meantime, we’ll keep bringing you Wall Street profit ideas, made Main Street simple.
Managing Editor, American Investor Today