In this digital age, social media has a strong influence on human behavior. Features such as notifications deliver information that can spark emotional reactions. With this in mind, it is no surprise that social media platforms such as Instagram, Twitter, and LinkedIn can spread hysteria in the stock market.
The effect of social media on the stock market was demonstrated this past spring when Elon Musk tweeted about a Robotaxi event on April 5th, 2024, and the stock rose by 5% in the extended trading session that day. Social media allows for influential figures to post on social media, sharing their thoughts on investing, trading, and other personal finances. However, easy access to these platforms can be dangerous when underqualified individuals share their advice that others might blindly follow.
The act of following others' behavior, instead of conducting independent research, is known as “following the herd”. Investors might participate in this practice because it seems like the easier option. Investment trends can go viral, leading to market frenzies. However, following the herd can lead to disappointing outcomes. To achieve better results, investors should build a diversified portfolio with a long-term goal.
That said, social media isn’t all negative in the world of finance. Investors can leverage platforms to seek out reliable sources like Bloomberg and the Wall Street Journal. Additionally, sites like LinkedIn provide opportunities for people to connect and converse about personal finance. Many use social media to build their clientele, with nearly 80% of institutional investors incorporating it into their regular workflow.
While social media can be used as a tool for investing, it should be used with caution.
Sources:
https://www.khanacademy.org/college-careers-more/social-media-challenges-and-opportunities/xbcfeb71becefc1ac:social-media-and-the-brain/xbcfeb71becefc1ac:how-does-social-media-impact-our-behavior/a/how-does-social-media-impact-our-behavior#:~:text=When%20social%20media%20forces%20us,of%20goodness%20and%20shared%20humanity.
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