If you are a regular person investing in the stock market invariably you will have a combination of index funds or mutual funds and individual stocks. The reason you need both is because the best stock to buy tend to be closer to $100 or more and if you have limited funds such as $1,000, you can only buy 10 shares. You need the company to do very well to make lots of money. With an index fund, as the markets over the course of the year performs to expectations, you assets will increase. The secret to great performance is to be invested in the handful of companies that are leading the market and at some point you will need to sell some or most of the holdings as another sector does even better. The way to minimize the risk is to ensure the companies that you are buying pay dividends to reward you because the stocks will go up and down with the cycles of the economy.

If you are a retail investor, you will likely spend more time watching and learning about the stock market, while some of your friends are content to park their money in index fund or mutual funds and that is okay. How does a retail investor stay current with the trends on the market? the same way everyone does – social media.

In an article by Preet Banerjee of the Globe and Mail, recently read a study that examined the impact of social dynamics on retail investor trading behavior helps to quantify how these social influencers affect performance. Not surprising the results are not good for the investor, it is good for the fees made in trading.

One of the key aspects of the research was to look at something called upward social comparison or the tendency to compare ourselves with someone who appears to be doing better.

In the study, participants were divided into two groups: one group was presented with information about top traders, while the other served as a control group. All the participants had better than average knowledge of investing. The researchers used a dynamic trading simulation that mimicked trading activity on real world online platforms to observe the participants’ behavior.

The results – the group exposed to top traders took significantly more risk, traded more actively and had higher overall trading volume compared to the control group.

The participants who traded more actively, did not match the best traders’ performance leading to decreased satisfaction with their own performance.

The social trading can be completely automated and big business. For example, eToro advertises a copy trader feature which allows you to have your account execute trades that mirror another user in real-time proportion to your account. The most copied account is a former trader managing his own account and his 23,700 followers.

There is a large role in social media in learning about stocks and investing and that is the good news. The harder part is realizing that one of the most important tasks of a retail investor is to take your time, learn and invest for the long-term will minimizing your risks.

Linking to dividend paying stocks, the reason you buy these stocks is the price of the stock tends to trade at a higher multiple than the rest of the market and every quarter the company pays you money to your account. With that money you can reinvest in more stock, you can buy something new, use in your daily lifestyle or your have options. The best traders have multiple strategies and making a little everyday, while trading millions of stocks is a good return. Most of us can do that, what we can do is try not to lose money or limit risk while enjoy a good return on your money.

There are more questions than answers, till the next time – to raising questions.