These popular TikToks correctly picked winning stocks. Here's why it's not that impressive.

By Gordon Gottsegen

Over 64% of stock predictions from 2023's most viewed stock-picking TikToks turned out to be accurate, in a bull market

A TikTok video titled "6 Stocks for 2024! Part one" by @overlookedalpha laid out the bull case for three different stocks going into 2024. Those three stocks were Take-Two Interactive Software Inc. (TTWO), Alphabet Inc. (GOOG) and Zillow (Z). If you invested $1,000 in each of the three stocks, you'd be up about $170.

That's not terrible. But you'd have more than triple that if you invested the same $3,000 into the SPDR S&P 500 ETF Trust, SPY a popular exchange-traded fund that tracks the S&P 500.

While Alphabet shares were up an impressive 33.5% year-to-date, Take-Two was down 4% and Zillow has fallen 12.5%, meaning two out of the three stock picks in that video have lost money in 2024.

Despite this, "6 Stocks for 2024! Part one" was the most watched TikTok last year about picking individual stocks, with 7.4 million views.

This points to one of the main issues with FinTok. Investing advice can go viral and get in front of a lot of eyeballs - even when it's not very good.

Read more: TikTok is teaching young people about money - for better or worse. A ban could bring that to an end.

New data shows the majority of the popular stock-picking TikToks ended up being accurate so far this year. However, this isn't as impressive as it sounds.

A report by BestBrokers looked at the 20 most watched TikTok videos from 2023 that picked stocks or ETFs for 2024, to check how those predictions turned out halfway into the year. The report found that 64.37% of the 87 stocks picked in those videos were profitable. Meanwhile, only 35.63% were at a loss.

While the majority of the securities picked in these videos turned out to be winners, keep in mind that the first half of 2024 has been great for the U.S. stock market. The S&P 500 SPX was up almost 18% year-to-date through Friday, while the Nasdaq Composite COMP was up over 22%.

It's much easier to pick stocks during a bull market than in a downtrend. On top of that, investors might have been better off just investing their money in index-tracking ETFs, rather than following investing advice from some of these videos. After all, the performance of equity indexes this year has been impressive.

Finally, stock picking isn't easy. Actively managed funds have difficulty beating the market, so this issue isn't specific to TikTok. But what is worth pointing out in relation to TikTok is the sheer influence it has on younger investors.

A recent survey by Nasdaq found that 73% of Gen Z and 76% millennial investors were likely to use social media as a resource when investing. This can be helpful for some young investors, but it can also expose them to investing misinformation.

"It's just a very problematic environment for that. You have nonaccredited investors, you have creators leveraging their trust to promote sophisticated securities. With how social works, it's really easy to manipulate social validation," Eric Dahan, the founder and chief executive of influencer marketing agency Mighty Joy, told MarketWatch.

Dahan says that social validation is extremely important for people's decision-making. It's why people will read reviews before buying something online or care what critics say about a movie. It's also why some investors turn to social media when trying to figure out which stocks to invest in. But Dahan says it's important to take investing advice on social media with a grain of salt.

"If they're pushing a stock, you should automatically be skeptical," Dahan said.

So next time you see a TikTok influencer using past wins as a reason to follow their investing advice, you may want to think twice. A correct stock pick may not be as impressive as it seems.

-Gordon Gottsegen

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

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07-13-24 0830ET

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