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How Not to Pick Stocks, as Explained by TikTok

By Katie Brockman - Feb 2, 2021 at 8:02PM

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Don't let these investing trends wreck your portfolio.

Picking stocks is both an art and a science. A successful investing strategy involves a lot of skill (and a little luck), and there are right ways and wrong ways to choose stocks.

Before you begin investing, it's wise to at least understand the basics of how the stock market works and what factors you should consider when picking stocks. So if you're getting your financial advice from TikTok, you could potentially be putting your money at risk.

Woman holding a smartphone

Image source: Getty Images.

Choosing stocks: What not to do

Everyone has different preferences when it comes to picking stocks. Some investors are more risk-averse, for example, while others prefer to take on high-risk, high-reward investments. That said, there are some investment strategies that you're better off avoiding.

One popular TikTok video, for example, suggests that the GameStop (GME -4.79%) stock price explosion is related to astrology. In reality, how certain stocks perform has far more to do with their financials (or in GameStop's case, a group of investors intentionally manipulating the stock price) than how the stars are aligned.

@marenaltman

gamestop insanity so i had to hop on #astrology #ZodiacSign #stocktok #moneytok

♬ Monkeys Spinning Monkeys-Kevin MacLeod

To decide whether a particular stock is a good investment, look at the company's overall financial health. Does it have strong long-term growth potential? Does it have a competitive advantage in its industry? What does its leadership team look like, and are they the right people to help this company succeed? A great investing strategy involves investing in stellar companies, and choosing the right stocks means doing your homework.

Another investing strategy gaining popularity on TikTok is the idea of investing in the same stocks as business executives.

@ceowatchlist

#stitch with @420loveontour #stocks #stockmarket #trading #tradingtips #sus #insidertrading #options #investing #daytrader #stockstobuy

♬ original sound-j money

This idea may sound good in theory, but business executives and CEOs often have different long-term strategies than the average investor. You may be able to find out which stocks these executives are buying or selling, but you don't know why they're buying or selling these particular stocks -- and the "why" part of the equation is key.

Business executives may buy or sell stocks for a number of reasons that don't affect outside investors. For example, some companies require executives to own a certain amount of the company's stock. This doesn't necessarily mean the stock is a good investment -- and if you're buying it simply because a high-level executive bought it, that could be a risky move.

Wealthy investors can sometimes afford to take on more risk, too. Business executives might invest in riskier stocks because even if they end up losing money, it won't significantly affect their finances. The average investor, however, may not be able to afford to take these kinds of risks.

Picking stocks the right way

The best way to pick stocks is to do your research and invest in strong companies that are likely to perform well over the long run. Good businesses make for good investments, and having a solid strategy behind how you pick stocks will pay off down the road.

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Stocks Mentioned

GameStop Corp. Stock Quote
GameStop Corp.
GME
$135.21 (-4.79%) $-6.81

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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