Social media platforms like Facebook, Twitter, YouTube, LinkedIn, and others have made it easy for companies to connect with investors and communicate information about themselves and their products.
However, since communicating investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition information through social media is relatively new, sometimes mistakes are made. Information that is shared online may be incomplete or misleading, and in some cases may not comply with securities laws.
Regardless of the channel where you find information, you should take steps to get full and accurate details about any company or investment product before deciding to investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition. You should also make sure that the person or company selling the investment is registered. In Canada, anyone who sells you an investment or advises you on which investment product or company to invest in, even if it is done through social media, must be registered with the securities regulatorSecurities regulator A government agency that enforces the securities act in jurisdiction it has authority over. This act is made up of laws that establish rules for issuing and trading securities. The Ontario Securities Commission is the securities regulator for Ontario.+ read full definition in each province or territory where they do business, unless an exemption applies.
3 risks of relying on information posted on social media
Not enough information
Social media posts are usually written as brief, to-the-point information that can be quickly read by investors, sometimes in as little as 140 characters. This leaves little room for companies, advisors, analysts, industry reporters or other individuals to communicate information about products, markets, trends and risks in a complete way. In some cases, key details are left out entirely.
Companies and individuals will sometimes also use blogs, message boards or other discussion websites to share investment information or tips. The information found in these spaces is often similarly brief and typically does not consider that factors that are unique to you and your financial goals, such as your time horizon or risk profile.
Misleading or incorrect information
Because companies and individuals often use social media as a way to reach out to customers and market their products, their posts often have a very positive tone and a strong promotional hook. However, these posts can sometimes be so promotional that they minimize or completely omit potentially negative information or risks about the company or the products being sold. When this happens, you aren’t able to get a complete picture of the information needed to make an informed decision about investing your money.
In some cases, companies will post information that is simply untrue, including financial results that are inconsistent with the data they have officially filed with securities regulators. You should be aware of this risk and ensure that you have access to required disclosure documents, such as a prospectusProspectus A legal document that sets out the full, true and plain facts you need to know about a security. Contains information about the company or mutual fund selling the security, its management, products or services, plans and business risks.+ read full definition or Fund FactsFund Facts A user-friendly guide that provides key information about a mutual fund including fees and performance. Mutual fund companies are required to give investors a copy of Fund Facts before they decide to purchase a fund.+ read full definition, before making a decision to invest.
Biased and sponsored reports
Companies and individuals will often share links to stories, reports, analyses and other commentary about their business or certain investment products that have been written or published by a third-party analyst, reporter or group not directly affiliated with the person or company making the post. This is often done to further market or add credibility to the company or an investment product.
However, some companies or individuals may select links to stories that are positive, promotional and more favourable toward the company or product being discussed, leaving out the negative or less favourable ones.
On some occasions, companies will pay for third-party reports or analyses that showcase themselves or certain products favourably and portray them as independent perspectives. But the fact that they have been sponsored increases the likelihood that they will be biased toward the company or recommend particular products over others as a way to entice investors.
Information that is intended to help you make a decision about investing should be factual and balanced, meaning that unfavourable news or information about a company or product must be communicated as clearly as favourable news.
Make sure to read any fine print attached to any stories or reports about a company or product to find out if the coverage is sponsored. If it is, you should question its bias.
If you have questions or concerns about an investment product or company that you see or read about online, you can contact the Ontario Securities Commission to speak with a staff member and get more information.
Technology’s effect on behaviour
Research has shown that online communication has shortened people’s attention spans as they are required to process hundreds of emails, texts and social media posts each day. This makes them less inclined to carefully consider what they read online and more likely to react to their first impressions.
With so much information available online, you may be drawn to the messages that are easiest to access and understand when making an investment decision. Social media may be one way for you to quickly get information to help you make a decision, but if it’s incomplete, misleading or biased, you may not be getting a complete picture of the risks and uncertainties that you should know before choosing to invest.
Getting information from other investors
Social media also makes it easy to connect with thousands of other investors sharing their own opinions and experiences with certain companies or products. Having access to other investors’ perspectives may give you additional insight into a particular company or product, but this can become risky if you rely on these perspectives to inform your own investment decisions.
Relying on information from other investors may create a narrow frame of reference for your own choices, anchoring your optionsOptions An investment that gives you the right to buy or sell it at a set price by a set date. The buy right is termed a “call” option, and the sell right is termed a “put” option. You buy options on a stock exchange.+ read full definition relative to those of someone else, even when the other person has financial goals or circumstances that are completely different from your own. It’s important to remember that everyone has their own investment objectives, time horizons, risk profile. What works for some investors may not be right for you.
If you have questions about investing in a particular company or product, you should take time to speak to an advisor and ask questions about how an investment would fit with your objectives and risk tolerance. Learn more about working with an advisor.
Making investing decisions
If you are considering investing in a company or product that you saw promoted online, you should first take some time to get the information you need to make an informed decision:
- Research companies and products. Posts on social media cannot provide you with all the information you need to make informed decisions about investing. Take time to do your own research into a particular company or product and learn the risks that accompany the investment.
- Speak with an advisor. Advisors can answer questions about particular investment products and assist you with selecting investments that can help you achieve your financial goals. Find out what to expect from an advisor.
- Take Action. Always take the time to check the registrationRegistration A requirement for any person or company trading investments or providing advice in Canada. Securities industry professionals are required to register with the securities regulator in each province or territory where they do business.+ read full definition of any person or business trying to sell you an investment or give you investment advice at CheckBeforeYouInvest.ca.
- Contact the Ontario Securities CommissionOntario Securities Commission An independent Crown corporation that is responsible for regulating the capital markets in Ontario. Its mandate is to provide protection to investors from unfair, improper or fraudulent practices, to foster fair and efficient capital markets and confidence in capital markets, and to contribute to the stability of the financial system and the reduction of systemic…+ read full definition if you have further questions or concerns. If you have a question about investing, working with advisors or fraud, you can contact the Ontario Securities Commission for further information.
Check official disclosure documents and company materials
You can find detailed and official information about companies and products by checking the following resources:
System for Electronic Document Analysis and RetrievalSystem for Electronic Document Analysis and Retrieval The electronic system used by public companies and investment funds across Canada to officially file disclosure documents. You can access this information free of charge.+ read full definition (SEDARSEDAR See System for Electronic Document Analysis and Retrieval.+ read full definition)
SEDAR is an electronic system used by public companies and investment funds across Canada to officially file disclosure documents. These disclosure documents contain information that can help you assess a company’s management, products, services, finances, future prospects and risks. You can access this information free of charge. Learn more about disclosure documents.
System for Electronic Disclosure by Insiders (SEDI)
SEDI is a filing system that collects the reports of all securities transactions made by people who are considered insiders of a company (for example, officers and directors of a company). You can access this information free of charge.
Generally, securities offered to the public in Ontario must be offered with a prospectus – a document that provides detailed information about the security and the company offering it. However, there are some exemptions to this rule that allow securities to be offered without a prospectus – these are called prospectus exemptions. Learn more about the exempt market and the different types of prospectus exemptions.
If you’re interested in purchasing a mutual fundMutual fund An investment that pools money from many people and invests it in a mix of investments such as stocks and bonds. A professional manager chooses investments that match the funds goals for risk and return. You can redeem your fund units at any time.+ read full definition, you can check the fund’s Fund Facts for a brief summary of key information. A Fund Facts document breaks down some important facets that investors should know about the fund, such as performance history, investments, risk rating and the costs associated with owning it. See a sample Fund Facts document.
Most publicly traded companies post annual reports on their websites. Annual reports can provide information on whether a company is making or losing money and why, as well as financial statementsFinancial statements Reports that sum up a companys financial data and tell you how it is doing. The four basic statements are: the statement of financial position (balance sheet, statement of profit or loss (income statement), cash flow statement, and statement of changes in equity.+ read full definition, details about the company’s operations, comments from executive staff on how the company performed over the past year, and industry trends and events that may have affected stockStock An investment that gives you part ownership or shares in a company. Often provides voting rights in some business decisions.+ read full definition performance.