Don't go by finfluencer's portfolio on trading platforms: Beware of random trading tips However, they can choose what to hide. Whether it is time periods, asset type, or the principal amount, everything can be customised
Dhirendra Kumar
CEO, Value Research
In a recent column for this newspaper, I wrote about Nassim Nicholas Taleb’s idea about how investment advisers should ideally prove their competence to the world. In his book ‘Skin in the Game’, Taleb has some interesting suggestion for advisers: ‘Don’t tell me what to do. Just show me your portfolio.’ It’s a literal implementation for would-be investment advisers, who simply maintain a public record of their portfolios.
I didn’t realise when I wrote this, but a version of Taleb’s idea has been developing for a while in the ‘finfluencer’ corner of social media. People who claim to give trading advice regularly post screenshots of how much money they make from trading. This is, of course, normal for almost any activity on social media and has been going on for a long time. The problem is that screenshots are easy to fake, and unless someone is an expert, it’s hard to differentiate real trading performance from the illusory. Surprisingly, some people believe these screenshot merchants. I suppose if you can reach thousands of people, there will always be some who are gullible enough or desperate enough to believe anything.
Over time, it became widely understood that screenshots were not proof of trading prowess and a more authentic method was needed. Of course, this disbelief came about only after many such screenshots turned out to be fakes. What many finfluencers displayed as their past trading performance did not in any way match their advice to people.
This ‘problem’ has now been resolved in a somewhat strange manner. Some brokers and trading platforms have devised ways to allow traders to display their profits and losses in a verifiable manner publicly. Essentially, traders can now generate a link on the trading site, which can be distributed publicly. Whenever anyone clicks on the link, he can view the trader’s profit and loss (P&L) records. However, before generating the link, the trader can choose what to hide. Whether it is time periods, asset type, or the principal amount, everything can be customised.
The result is predictable. The broker-verified P&L appears to have a stamp of authenticity, but can be carefully tuned to be just as misleading as the screenshots. In fact, they can be more deceptive. This is because an outright lie is often better than something that appears to be true, but is an obfuscated, half-concealed version of truth. When a finfluencer posts a screenshot, you know it cannot be taken at face value. However, when the website of a leading broker shows you profit and loss, it has a veneer of truth, which makes it a better tool to fool the gullible.
The important question is why brokerages are adding this feature to their services. Whose need does it serve? Who is demanding this feature? The answer is self-evident. This ‘verified P&L’ is a facility for people to set up an unregulated, under-the-radar trading advisory service using social media. If Sebi is serious about prohibiting unregulated trading advisers, coaches or whatever they call themselves, it should look at this verified P&L phenomenon. It could be a good way of cracking down on such people.
Another group of people is using verified P&Ls to boast about what they are doing without selling services. A typical example of such a tweet is: ‘Five years back, my annual salary was Rs.25 lakh. Now my daily SL (stop loss) in a trade on expiry is Rs.25 lakh. It’s incredible how quickly trading can change your life’. Perhaps such people are establishing their reputation for the future, or maybe they are just showing off, which is human nature. Either way, it makes no difference.
For someone like me and, I believe, for most investors who read this column, the concept of chasing random advisers on the Internet for trading tips must seem like bizarre behaviour. I’ve deliberately used the word trader in this column because no investor would do this, and this is a good way of distinguishing traders from investors.
(The author is CEO, VALUE RESEARCH.)
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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
