Social media (especially Twitter/X) is an incredible place to get investment ideas and knowledge in real time.

Personally, I love when people post their top positions (and/or portfolio holdings) and their corresponding investment returns/performance.

And I have invested in stocks I first read about on Twitter (Celsius Holdings in 2021 comes to mind).

But before anyone gets too impressed with some fintwit’s returns (and subsequently starts betting their own farm in copycat fashion), here are 7 framework’s to benchmark their performance and help you keep their influence in check.

1. Timeframe

We’ve all seen it. When the market is going up, fintwits openly share their performance and holdings. But when the maket goes down… crickets. Similarly, I am noticing plenty of recent influencers boasting about their performance, but their track records conveniently only go back about 18 months (right around the time the market was bottoming after the pandemic bubble finished bursting). But if you pay attention, these same accounts were bragging about the Teladoc’s, Unity Software’s and Upstart’s of the world (names that crashed and may never rebound). If these same accounts extended their track records back a little further, their performance is not so pretty. Takeaway: Unless someone has a track record that covers at least one (ideally multiple) market cycles, be even more skeptical.

2. Leverage

I recently saw a fintwit share his triple-digit first quarter returns—amazing performance! But he also listed his holdings, and only one name in the potfolio returned triple digits, so it seemed highly suspect. It turns out, he was using leverage (and volatile call options) to juice his performance. Kudos to him for posting such stong returns, but leverage introduces extreme risk (in my experience it is consistenly one of the top (if not the top) reasons hedge funds blow up and individual investors lose their life savings—too much leverage!). Takeaway: Don’t confuse a high-beta portfolio (through leverage) with high alpha. There are risks.

3. Number of holdings & Total portfolio size

It’s important to find social media accounts that are consistent with your goals and situation. For example, if someone generates a 100% return, but it turns out they only hold one or two stocks, and their total portfolio size is only around $500, that is probably not a good role model for someone with their entire lifesavings in a $2 million dollar Individual Retirement Account (IRA). Unfortunately however, that information is not always readily disclosed on social media, and it can lead some people to take on widely inappropriate risks. Takeaway: Have a healthy sense of skepticism.

4.Composites (full disclosure of all strategies)

If you jump through the hoops to have an audited, verifiable, GIPS compliant track record, one thing you’ll learn is that ALL of your investment strategies have to be included (and disclosed) in a composite. This means you cannot start 10 different high-risk investment strategies, and then only brag about the one that is successful (while totally ignoring the other nine that went totally broke). Yet, this seems to happend frequently on social media.

5. Conflicts of interest

How does your favorite social media influencer get paid?

Are they independently wealthy and just creating posts out of the goodness of their heart?
Are they getting paid per click and thereby inappropriately incentivized to generate overly sensationalized content to get more clicks?
Are they pushing investment products to earn a commission?
Do they work for a firm that requires them to only use passive ETF strategies? Only growth and tech stocks?

How they get paid will dramatically impact what they invest in, what they write about and what they don’t. Personally, I greatly prefer independence, but people with bosses do great things too (even if sometimes the bosses steal all the credit).

6. A Balanced Portfolio vs. QQQ

My heart goes out to the responsible people investing in prudent risk-appopriate balanced portfolios of stocks and bonds. Why? Because fintwit does everything in their power to make them look bad, especially when the market is going up (such as the tech heavy Nasdaq 100 (QQQ)). But investing is a marathon, not a sprint. And people will have very different needs and reactions when the next market selloff arrives. Takeaway: Just because someone has a great short-term track record, doesn’t mean they’ve won.

7. Tax-Adjusted Returns:

Many of the top-performing fintwits actually have terrible investment returns on a tax-adjusted basis. And it’s not just forgeting to contribute to your IRA when you’re eligible (which, sadly, happens often). Everything from the higher tax rates on short-term trading, to missing out on tax gain/loss harvesting, dropping the ball on Roth IRA conversion opportunities and owning the wrong types of investments in the wrong types of accounts. Sadly, there is so much money being left on the table by fintwit investors ferociously barking up the wrong trees.