Amateur investors can be found everywhere, from social media forums to online investment clubs. While they may have good intentions, it is important to understand the risks associated with following the advice of inexperienced investors.
Here are some reasons why amateur investor advice can be risky:
1. Lack of Expertise: Amateur investors lack the in-depth knowledge and experience of professional investors. They often base their investment decisions on hearsay, speculation, and emotions rather than evidence-based research, due diligence, and analytical skills. As a result, their recommendations may not be well-informed or reliable.
2. Biased or Ill-informed Advice: Many amateur investors have vested interests or biases, which can impact the quality of their investment advice. They may promote certain stocks or sectors without properly assessing the risks and potential drawbacks. Furthermore, they may not be updated on the latest market trends or economic data leading to misguided recommendations.
3. Overconfidence and FOMO: Amateur investors can often try to compensate for their lack of expertise by projecting overconfidence in their recommendations. Additionally, they tend to miss out on the details and weigh potential losses in investing in the market out of fear of missing out (FOMO) on the potential profits.
4. Accountability and Responsibility: Amateur investors often share investment opinions to social media platforms without the weight of accountability for their recommendations. For example, someone may convey buying shares from a certain firm with a view of quick gains without evaluating the long term gain that it may pose a loss in the future. This is why it is imperative to utilize a reliable investment advisor or credible sources that can provide investment advice with accountability.
5. Inadequate investment planning: Investors often believe that looking at the returns of the stock of a single company indicates that the company is thriving and it may just be the best time to invest in that company. However, proper planning involves diversification of your investments into different stocks, bonds, and asset classes, not just concentrating investments in one single company.
In conclusion, amateur investors’ advice is prone to risks and is not always advisable. While sometimes it may be tempting to follow recommendations from non-professionals, it is essential to do your own research and ensure that you are getting advice from reputable sources before making investment decisions. Otherwise, it is better to consult a professional financial advisor. Remember, investing always carries a certain degree of risk due to market fluctuations, and a poor investment decision may cause significant losses.