There’s probably no greater example of the impact social media can have on the sharemarket than Elon Musk wiping $14 billion off Tesla’s value in one tweet.
Self sabotage is one thing, but what about the very real impacts for ‘Joe Average’ retail shareholders? However, social media is a massive mobiliser, and shareholder activists have more power than ever before to affect change and impact share prices.
Investor Eric Jackson has been a pioneer in this space, famously causing a revolt at Yahoo! that ultimately saw its CEO resign in the mid-2000s. Never mind that he only had a handful of shares, he built momentum by voicing his dissatisfaction and appealing to other investors online.
In Korea, professional activist investors are targeting undervalued companies and looking to push their own agendas, which aren’t always aligned to the goals of majority owners. Even if these activists don’t achieve their goals, public campaigns put pressure on decision-makers and can influence share prices.
Social media can also be harnessed to good effect, and the rapid, Reddit-driven rise of GameStop stock is another high profile example that showcases its pulling power on market value (even if it hasn’t ended particularly well).
Most listed companies won’t find themselves being targeted by keyboard-wielding mob movements, but that doesn’t mean they’re immune to the impacts of social media.
Finder research in the UK found more than half of all investors use social media for investing advice. Social media is the number one source of investing advice for young kiwis, which is made more significant by the way retail investment platforms have enabled more and more of them to become shareholders.
It’s a situation ripe for opportunists. Online “finfluencers” require no accreditation, but are able to fire out ‘hot tips’ without fact checking or accountability.
That’s not to say they’re all bad, but investors may struggle to differentiate a legitimate organisation with qualifications from a cowboy with a reckon. Radio NZ quoted the FMA’s manager of investor capability Tammy Peyper as saying from what it has seen, finfluencers' conduct was above board. She added they were playing an important role in getting younger people to begin thinking about money and their futures.
Ultimately, it creates a minefield for investors looking to figure out who to trust. In a 2021 FMA survey, 27% of retail investors said they invested based on a recommendation without doing their own research.
Sharesies runs its own Facebook group for members to discuss investments and ask questions. It manages the group of more than 64,000 members itself, but doesn’t appear to have anything to do with a separate Sharesies investors group that has nearly 2,000 members and purports to not have “the heavy handed moderation of the other group”.
Can these groups move the market? Absolutely, and Fisher Funds says it’s happened in New Zealand already. It seems increasingly likely that social media will continue to have a greater influence on investor behaviour.
All this is particularly relevant as we head into a new financial year that is expected to be challenging for a number of companies. How you communicate financial results in this new environment is crucial, and social media is an important channel that can be used to address investor sentiment. Connecting with, and constantly informing, investors across all communication channels is crucial.
As always, investor-facing companies have a critical need for an evolving risk register and a communications strategy that considers the full spectrum of market voices.