99% of people reading this article will have two reactions: they\u2019ll ignore it or think I\u2019m a moron. So, why write? I don\u2019t know; it\u2019s an itch I can\u2019t scratch.<\/p>\n
If you are on Twitter, you must have noticed the backlash against influencers of late. It started with the expose of some finfluencers faking P&L screenshots. Soon, this descended into a mudslinging contest between the less unsavory characters accusing the more unsavory characters. It\u2019s incredible to see the less unsavory claim the moral high ground. Everything is relative in life, I guess.<\/p>\n
In the last five-odd years, financial influencers, or \u201cfinfluencers\u201d have built humongous followings on social media platforms like YouTube, Instagram, and Twitter. Their popularity has exploded after the pandemic, given the massive influx of new people into the stock market. These people create content on everything from what stock to buy, how to make 1% a day, why Warren Buffett is an old guy who has no clue what he\u2019s talking about, and why Jerome Powell, the chairman of the Fed, sucks at his job. There isn\u2019t a subject these influencers don\u2019t know about. Very wise people.<\/p>\n
There was a time when new traders and investors would make the mistake of relying on stock tips from business news channels and random WhatsApp and Telegram groups, but times have changed. Today, most new investors in the markets get their investing advice from these influencers.<\/p>\n
As counterintuitive as it sounds, we need influencers. Not the loudmouths who promise to make you rich in 12 days but people who teach about trading, investing, personal finance, etc. There\u2019s absolutely nothing wrong with that. Markets don\u2019t expand in isolation\u2014it takes a village<\/a>. But the issue is the incentives.<\/p>\n The irony is that there are genuine folks who publish some amazing videos on trading and investing, but they only get 8 views. On the flip side, the loudmouths who have no clue about finance but say stupid stuff like \u201chow to make X lakhs in 7 days\u201d get lakhs of views. Nobody likes to make money slowly, so nobody watches or reads sensible videos and articles. Everybody wants to get rich, and there are thousands of shady characters catering to that greed that have become popular. These people make more money in a month than most people in a few years \ud83d\ude1e<\/p>\n Let me tell you a secret: trading is hard.<\/p>\n I know you\u2019re shocked.<\/p>\n As Nithin<\/a> keeps saying:<\/p>\n \u201cTrading actively is the toughest way to make easy money in life.\u201d<\/p>\n Don\u2019t be disheartened. There are ways to get rich quick, but you\u2019re not going to like them:<\/p>\n Being a finfluencer is really easy\u2014saying random things with confidence is 80% of the game. Greed will take care of the rest. <\/span><\/p>\n I\u2019m kidding, but this is how fraudsters operate. So the next time you see this pattern, you will hopefully be a little more skeptical of outlandish claims.<\/p>\n Greed is one of the most destructive emotions. It destroys common sense, rationality, and critical thinking. It creates tunnel vision, where you focus on impossible financial outcomes while ignoring all evidence to the contrary. This greed-induced myopia is a big reason why people fall for financial scams.<\/p>\n If you don\u2019t want to become rich this way, then the only alternative is to get rich slowly. Even before that, ask yourself this: If someone knows how to become rich in 12 days flat, why would they sell that information? Wouldn\u2019t such people keep the information to themselves and become rich instead?<\/p>\n What disturbs me the most is that a lot of people who take trading and investing advice from these influencers are young. On the one hand, I believe there\u2019s no better teacher than experience. If these people lose money by listening to influencers, they\u2019ll learn more than reading 100 books. Learning the hard way when they are young and have less money is better than learning the costly way later in life. On the other hand, I also realize that if their first trading and investing experience is bad, they can lose trust in the markets and never invest again. That\u2019s bad for the markets.<\/p>\n But the bigger problem is that these young people are missing the point if they think they can make a lot of money quickly. They won\u2019t have a lot of money, and that\u2019s why they fall for these make 1% a day sales pitches. Of course, they could borrow money to invest for the long term in weekly options, and there\u2019s some indirect evidence<\/a> of that.<\/p>\n If you are young, what do you think is your biggest asset?<\/p>\n If you think it\u2019s your parents assets, small savings, bike, car etc.\u2014then you are wrong. When you are young, your biggest asset is you. In other words, it\u2019s your future earnings potential. As obvious as it seems, human capital is not well understood. In fact, I didn\u2019t know it until my late 20s. I had written about it<\/a> earlier this year, here\u2019s an excerpt:<\/p>\n But let me ask you this, what\u2019s your biggest asset? <\/em><\/p>\n It\u2019s not your house, land, or your investment portfolio, it\u2019s your human capital. In other words, human capital is the present value of your future earnings potential. We think that we are working to build financial assets to retire comfortably. But we\u2019re converting our human capital into financial capital.<\/em><\/p>\n People don\u2019t understand this concept well, and most financial planners don\u2019t even include this as part of the financial planning process. All the conversations revolve around stocks, mutual funds, and asset allocation. They don\u2019t understand that the source of financial wealth is human capital, not the other way around. <\/em><\/p>\n In summary, the most valuable asset that requires the utmost amount of care and consideration is not your investment portfolio, but your human capital.<\/em><\/p>\n The younger you are, the higher your human capital. If you\u2019re reading this, you\u2019d be well aware of the magic of compounding on your investments. But imagine the power of compounding your skills. The rate of return from improving your skills and knowledge will be far greater than the rate of return on your investments. <\/em><\/p>\n The rate of return on your human capital determines your savings rate. It is far more important than the rate of return on your investments.<\/em><\/p><\/blockquote>\n When you are young, trying to get rich from weekly options because someone said so on YouTube is stupid. I\u2019m not saying don\u2019t trade, do it, but with money you can afford to lose. There\u2019s no better way to learn about the markets than by playing around. Just don\u2019t assume trading will help you get rich quickly\u2014it won\u2019t. Odds are, you\u2019ll blow a lot of money and have an awkward conversation with your parents where they look at you with regret. If you spend time investing in yourself, the potential returns are far higher than hitting the lottery with an OTM option. It\u2019s a very unintuitive way of thinking, which is why most people don\u2019t get it.<\/p>\n You also need to have the sense to distinguish sense from nonsense. Basic financial literacy in the 21st century is a life skill. If you can\u2019t distinguish between what\u2019s useful and what\u2019s BS, you\u2019ll end up doing dumb things by listening to random people. At the bare minimum, you need to know enough to distinguish sense from nonsense when people give advice like this:<\/p>\n Having said that, asking people to forget about getting rich quickly is like convincing a person who wants to buy a Ferrari to buy a Maruti 800. If you do, you\u2019ll get punched in the throat.<\/p>\n This is why I started this article by saying people will ignore it \ud83d\ude22<\/p>\n But if you belong to the 1% of people who might see the light, here\u2019s some advice. If someone tells you that you can become rich quickly, he\u2019s either lying or trying to make you a fool. You can, however, get rich slowly if you are willing to be patient. Even before you start investing, the first thing you need to realize is that unless your full-time job involves managing money, investing is a giant distraction. The best thing to do is start a SIP in a couple of equity index and debt funds and do something useful with your life. I know you\u2019ll ask me what fund, how much, etc. Lucky for you, I\u2019ve written about it numerous times:\u00a0<\/span><\/p>\n Nithin and Abid had a wonderful conversation with Sandeep Parekh, India\u2019s foremost security lawyer, on the topic of regulating influencers. It has a ton of insights, not just on regulations but on trading and investing as well, I can\u2019t recommend watching it enough:\u00a0<\/span><\/p>\n\n
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Keepsakes<\/h4>\n
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