How to Build a Stock Portfolio and Avoid Social Media Fakes

Social media is full of stock market gurus promising quick profits and easy investment tips. While social media provides valuable information, it is also a place where the illusion of success can overshadow reality. That’s why it’s crucial to master the basics of stock investing and distinguish true expertise from the hype-driven deception.

At the core of stock investing is company selection, also known as stock picking. The most important factor is that the company has long-term growth prospects and a sustainable competitive advantage. Without these, an investor shouldn’t even consider getting involved. Additionally, the company’s financial situation must be stable to avoid unpleasant surprises. This aligns with the fundamental rule of investing: don’t lose money.

A common misconception is that the cheapest option is the best one—but that’s not the case. In the stock market, a smart investor looks for winning companies at a good price. It’s all about value for money, not just the lowest price.

Diversification is also key. A general rule of thumb is to allocate 80% of the portfolio to low-risk index companies and 20% to smaller, higher-risk companies. A well-diversified portfolio could consist of 8–10 companies across different industries. Purchases should not be made all at once but rather in three separate tranches, minimizing the impact of potential bad investments. Mistakes in investing are inevitable, but they should be seen as tuition fees, not failures.

While timing the market is difficult, that doesn’t mean it shouldn’t be attempted. Timing skills can be developed by monitoring market sentiment, stock charts, and news. It’s also wise for an investor to keep a cash reserve, typically 10–30% of their portfolio, allowing them to buy stocks at the right time and manage portfolio risks effectively.

Social media provides many investors with visibility, but visibility alone doesn’t make someone an expert. Often, social media gurus' success is based on a single trend or a one-time lucky stock pick—but sustainable success cannot be built on a single lucky bet.

A good investor doesn’t chase trends but can consistently repeat their success year after year in different market conditions. They have a broad toolkit and a clear investment strategy. For a good investor, the stock market is not just a speculation game but a source of regular and independent income.

Social media moves fast, but investing requires patience. If someone appears infallible in their videos or only highlights a single successful investment, it’s best to remain skeptical. True investment success is measured over decades, not weeks or months.

The original Finnish column text is available in the digital version of Salonjokilaakso, on page 14.