Why Following Celebrity Investors Isn't Always a Good Idea: Rethinking Our Approach to Investing

It’s time to rethink celebrity investors

When you first become interested in investing, you’ll likely be shown dozens of YouTube, Instagram, and TikTok accounts that worship at the altar of the celebrity investor. If you’re lucky, you’ll end up following accounts that espouse the time-tested investing principles of someone like Warren Buffet. If you’re not so lucky, you’ll end up on one of the many dangerous TikTok accounts that teach you how to “get rich quick” on Robinhood by employing reckless day-trading tactics.

A sneak peek of one of our top secret trading strategies. h/t @ryanfeller_ pic.twitter.com/V2PFee7vu4

— TTI (@TikTokInvestors) January 17, 2021

But in the middle of those two extremes is the celebrity investor. This group includes Bill Ackman, Ray Dalio, Charlie Munger, Michael Burry, George Soros, Steve Cohen, Cathie Wood, Nancy Pelosi (joking, but only partially), Jim Cramer (good luck), and, of course, Warren Buffet.

These investors are all successful in their own right. But too often, we treat them as examples to follow for our own investing. In reality, celebrity investors are typically performing under a very different set of circumstances compared to those facing independent retail investors. Celebrity investors might own a hedge fund, work in the media (which means their job is to think and talk about stocks all day), or manage an index fund.

When you have billions of dollars in capital, investing becomes a different ball game. You don’t just go on Robinhood and buy a stock — you build a position through a professional intermediary. Similarly, your position might allow you to actually appoint new people on the board of a company. So while a retail investor is basically jumping on a train and going along for the ride, an institutional investor might be able to move the tracks and appoint a new conductor. Sometimes funds even have insurance policies on trades.

Social media has been a blessing and a curse for the independent investor. On the one hand, there’s never before been so much valuable information so widely available. On the other hand, there’s also never been so much bad information polluting the landscape. Especially with platforms such as TikTok and YouTube Shorts, the algorithms are optimizing for engagement — not optimizing your finances.

In this sense, celebrity investors can be great fodder for engagement. When Warren Buffet or Michael Burry take a giant position in a new company, the finance world wants to know about it. But again, it’s important not to try to invest like a celebrity investor — because we only see a glimpse of their operations.

We aren’t saying to remake your financial information ecosystem entirely. Celebrity investors are engaging, and they can teach you a lot about financial markets and investing. It’s simply important to be able to separate their actions from your own. Even when you keep the principles of investing in mind, it can be difficult to not be swayed by an ominous Michael Burry tweet. It’s just like if you watch Jaws and then go to the beach — you might know the risk of shark attacks is extremely low, but you still won’t feel comfortable swimming into the ocean.

The truth is that many of the best investor guides are the most boring. They don't have flashy public personas or make headlines with bold trades. Instead, they help investors quietly and consistently follow a set of proven investment principles that have stood the test of time.

Tools such as Xillion’s portfolio optimizer can help you stay on track, even when social media exposes you to all the noise. Aside from our investing tools, we also have a cohort of mentors who can assure you that you’re on the right path for your own financial journey — not Warren Buffet’s, nor Jim Cramer’s, nor Bill Ackman’s, but your own.