Gen Z Investment Trends: How accurate are stock predictions from TikTok?

On the back of the artificial intelligence buzz of the past few months, some tech companies made a furore on the stock market this year – by Paul Hoffman

Shares of the chip maker Nvidia surged on June 20, helping the company overtake Microsoft and Apple as the world’s most valuable listed company. This success was short-lived as the stock plunged by 16p within just a few days, erasing some $550 billion of the company value. But who would have predicted such dramatic events? It turns out many investors were expecting the stock to go up this year, including some of the so-called “finfluencers” on social media.

The team at BestBrokers decided to check exactly how accurate TikTok’s predictions about the stock market are. We picked the 20 most watched videos from 2023, suggesting stocks that would supposedly surge in price in 2024 and checked their credibility. Out of the combined 87 stock predictions from those videos, we found that six months into 2024, a surprising 64.37% came out profitable, while 35.63% were at a loss.

Methodology

To conduct this analysis the team at BestBrokers manually searched through TikTok to find 2023’s most watched videos with a stock or ETF forecast for 2024. We selected the top 20 videos with more than 50,000 views each and used every stock/ETF suggestion from the post for our virtual investments. Most top TikToks about stocks include between 3 and 5 suggestions – which stock to buy; which stock will surge in price, etc. Interested in seeing how much an investor would gain or respectively lose if they followed these tips, we calculated the outcomes if one were to invest $1,000 in each suggested stock and from each video.

We checked the price of all stocks/ETFs from the posting date of the videos and compared it to the price on June 21 using New York Stock Exchange (NYSE) trading data. Furthermore, to establish which TikToks were the most accurate and which ones were misleading, we calculated how much our hypothetical investment of $1,000 in each stock or ETF would change in value between the video’s release and June 21, 2024.

@overlookedalpha

Part 1 #stocktok #investing #stocks

♬ original sound – 3MB

TikTok Financial Advice?

The financial sector has embraced social media platforms in recent years due to their immense potential for influencer marketing. While some certified professionals offering legitimate advice and budgeting guidance do exist on social media, most apps are also filled with millions of deceitful financial posts. Such content can be especially harmful for younger viewers, who are highly likely to trust financial advice on those platforms. TikTok, in particular, has seen an enormous rise in financial influencers, also called finfluencers over the past few years, who promote all kinds of financial advice such as crypto, stock, or forex trading.

Divided predominantly between Gen Z and Millenials, the platform’s users are young, naive and eager to get rich quickly. As more and more of them turn to stock and ETF trading as their primary way of saving, a recent study by the Financial Conduct Authority (FCA) reveals that 58% of those aged 40 and under have chosen to do so based on content they saw on social media.

https://www.tiktok.com/@capital.growth/video/7314753700520594693?is_from_webapp=1&sender_device=pc

The reason why TikTok financial advice is unreliable

Even though most stock predictions came out feasible, the majority of forecasters were betting rather cautiously, suggesting investments with tech giants such as Google, NVIDIA and Amazon, which hold relatively consistent stock prices.

Based on an initial price taken in December 2023, NVIDIA ranks first in June 2024 in terms of profitability, growing by more than 163.08% since then. This means that a $1,000 investment now would’ve increased to a substantial $1,630.79. However, on the other side of the spectrum, Ginkgo Bioworks Holdings Inc. is the stock with the greatest fal, down 74.74% since it was suggested in a TikTok and reaching its all-time low at the beginning of June. This ‘expected to thrive in 2024’ stock, according to a post with nearly 950,000 views, is the prediction with the worst outcome, where an investment of $1,000 would diminish by $734.51 within only six months.

If a person follows all predictions from a single video and hypothetically invests $1,000 in every suggested stock from the post, the largest profit from a single video-based strategy would be $4,860. This, however, would require a $23,000 initial investment in 23 different stocks, some profitable, some not so much. On the other hand, the worst prediction-based investment ends in a loss of $1,517. It is a result of a video where the TikToker suggests buying three different stocks, all falling in price since the video was posted.

https://www.tiktok.com/@stockbusterr/video/7303720879392034090?is_from_webapp=1&sender_device=pc

The threat of illegal wrongdoing accusations

Following a growing wave of fininfluencers, providing questionable financial advice to unsuspecting audiences, many government bodies from the U.S. Securities and Exchange Commission (SEC) to the European Securities and Markets Authority (ESMA) are tightening the control over social media platforms and the self-proclaimed financial experts on them.

Most content creators have thousands of followers, meaning their opinions can significantly impact many viewers’ financial well-being. Over the past year, multiple celebrities were even slapped with six-figure fines for posting sponsored financial advice without disclosing that they had been paid for it. Furthermore, in certain jurisdictions such as the United Kingdom fininfluencers may receive a fine of unlimited amount, a sentence of up to two years in prison, or both for posting paid-for or unregulated financial advice. Authorities in Australia, Europe, and the United States have also warned about the serious consequences for posting sponsored or misleading financial advice online. As a result, more and more TikTok videos can be seen with disclaimers such as ‘Not Financial Advice’ or ‘Content is for entertainment purposes only’.

Are Finfluencers Trustworthy?

A recent study on finfluencers revealed that only 28% of them can be defined as ‘skilled’, 16% were labeled unskilled, while an astounding 56% have a negative skill, or as they described them fall in the ‘anti-skilled’ category. Our findings also show a clear lack of consistency in the fininfluencers’ results and predictions, further underlining the importance of distinguishing between know-how and luck.

By setting an overly optimistic tone in the video, many finfluencers sell the idea of a given stock as the easiest and bullet-proof way to make a profit. However, a big part of their audience is inexperienced and can easily be deceived by the promise of a hassle-free return from stocks.

Interestingly, some videos even predict exactly how much a stock will rise in 2024. As far as the best one, a BNN Bloomberg correspondent falls only 0.26% short of the precise 28.26% rise of Amazon’s shares (AMZN) from the video’s posting.

In contrast, the worst forecast on our list predicts a 98% increase in Intel Corp’s stock (INTC), which six months later, falls by 30.99% from its price on the day of posting. Coincidence or not, both predictions are from the same finfluencer, further supporting the idea of how unreliable stock advice on the platform is.

In addition to the deceptive advice on TikTok, which can lead to serious financial losses, social media is full of ‘boiler room scams’ or ‘pump & dump scams’, luring unsuspecting potential investors into schemes that only benefit the original creator of the video.

Published by our friends at: