Motley Fool Money - The Good, Bad, and Ugly of TikTok Financial Advice

Episode Date: April 19, 2022

Is Wall Street starting to give companies the benefit of the doubt? (0:20) Bill Mann discusses: - Johnson & Johnson's rise despite lowering guidance - How J&J's margins are better than they appear - The company's 60-year streak of increasing its dividend - Didi Global's upcoming shareholder meeting to vote on delisting from the NYSE (10:30) Alison Southwick and Robert Brokamp talk with Motley Fool bureau chief Kirsten Guerra about how to find good financial advice on TikTok. Stocks discussed: JNJ, DIDI, AMC, GME, GOOG, GOOGL Got a question about stocks, industries, or trends? Call our voicemail: [phone] Host: Chris Hill Guests: Bill Mann, Alison Southwick, Kirsten Guerra, Robert "Bro" Brokamp Producer: Ricky Mulvey Engineers: Dan Boyd, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, I'm Charlie Cox. Join us on Disney Plus as we talk with the cast and crew of Marvel Television's Daredevil Born Again. What haven't you gotten to do as Daredevil? Being the Avengers. Charlie and Vincent came to play. I get emotional when I think about it. One of the great finale of any episode we've ever done. We are going to play Truth or Daredevil.

What? Oh boy. Fantastic. You guys go hard. Daredevil Born Again official podcast Tuesdays and stream Season 2 of Marvel Television's Daredevil Born Again on Disney Plus. We've got a blue chip stock, a Chinese company in the spotlight, and a look at financial advice on TikTok. Motley Fool Money starts now.

I'm Chris Hill and I'm joined by Motley Fool Senior Analyst Bill Mann. Thanks for being here. Hey, Chris. How are you? I am doing well. Missed you last week. No, you didn't. I did.

You did just fine without me last week. I did. I'm doing fine because I'm a Johnson and Johnson shareholder. I know not everybody is, but we will, uh, you did just. We'll get to DEDY Global in a minute, but I did want to get your thoughts on Johnson and Johnson. This is one of those times where... You just want me to talk about how smart you are for holding Johnson and Johnson. No, no, not at all.

I was going to say this is one of those times where, and I say this as a fan of the financial media in general, but the headline on Johnson and Johnson is they lowered their guidance. And technically that is true. So, when you look at the underlying results of this healthcare behemoth, pharma sales up 6%, medical devices up 6%, this is a business that is just quietly, methodically chugging along, as it has done for years now. The 60th straight year that they've raised their dividend. They raise their dividend by a little more than 6%, which the pedant in me, the pedant in me,

should, would point out, trails inflation, but nonetheless, it's a, you know, it's a rather, it's a rather great hike. Yeah, their results were fine. They were they beat, they beat on revenues by a bit. They, they trailed on, no, they beat on earnings by a bit. They trailed on revenues by a bit. And so instantly, when you hear that sort of thing, you should think in your mind, Ah, their lower margin stuff, the things that they sold were the area that they struggled. And this should tell you why the guidance doesn't matter all that much, because the area where Johnson Johnson struggled was in consumer health. It's the area where they sell the most volume, but it's also the area that's impacted the most by global trade and global supply chain problems.

It's also the part that they are spinning off. It's also the part that they're spitting off. They're like, here's not our problem anymore. Yes. So the stock is now, as of this morning, was at an all-time high up about 12%. And it's just a cash flow machine. It really, really is. So you know, you're getting a bigger dividend. I'm going to say everything else like I'm just talking to you. Here's what you are getting, Chris. You are getting a higher dividend. You are getting a higher margin. business and the higher margin part, as you know, is the part that's being retained, which is why you made the decision to retain that part and send the global consumer health part

into a separate division. They didn't ask me. They didn't ask most shareholders on that. They didn't have to ask. They knew. I don't want to get ahead of myself, but I've been saying for months on this show that we're in an environment environment where no company is getting the benefit of the doubt. And Johnson and Johnson, well-known, large blue, bluest of the blue chips, as far as I'm concerned,

heard of that. Had quarterly results that were good but not amazing, and they had guidance, which was technically lower. And the stock is up as a result of that. It's the margins. Here's the part where I don't want to get ahead of myself. ahead of myself. Are we moving out of this area? And now we're seeing some more nuanced thought on Wall Street. Well, that would be nice. I just think that in the case of Johnson and Johnson,

the fact that they trailed on revenues but beat on earnings show that they were incredibly high value earnings and high value revenues. So I think that the numbers themselves, as you say, because no quarter, especially not in an age of COVID and an age of all the macroeconomic things going on, no quarter is the same as a previous quarter. You don't get to throw a stone into the same river. And Johnson and Johnson turned into me a dynamite quarter. It just doesn't look like it on the surface. It's kind of like, you know, the old line about, you know, that Bart Twain said about Wagner's music, that it's better than it sounds. This quarter is better than it sounds.

Let's move on to D.D. Global, also known as the Uber of China, Dedy Global, like Uber, into ride handling and food delivery. Their fourth quarter results came out on Monday. Revenue was down from a year earlier. We can talk about that, but I want to start with. Sure, whatever. Well, we can get to the actual results, but I want to start with the fact that D.D. Global announced they're having a share Holder meeting in late May to vote on delisting from the New York Stock Exchange. You and I have talked over the past couple of months about the SEC coming out with their updated list of companies that might get delisted.

Is this how it appears on the surface that a company based in China is voluntarily going to vote on whether or not to leave on their own? I mean, kind of. I mean, D.D. has been, I mean, DED's behavior since the moment they came public has been, and it's only been a little more than a year, it's been absolutely abominable. The Chinese government essentially, but maybe not clearly enough, forbade them from going public in the U.S. And they did it anyway. And then, so the Chinese government has removed the D.D. app from all of the super apps in China, So it's a business that has been defenestrated.

So now they're at the point where they're trying to figure out what's going to make the Chinese government happy. And one of the things that they, you know, that they believe was, okay, if we undo this, if we undo this American listing, that might help. But they have no plans to go public someplace else. So, there's going to be a vote, which may or may not pass, after which time, if it passes, D.D.'s shares will go dark, and there's no real plan to have them trade someplace else. It's wild to me. So what happens if you're a shareholder of D.D. Global besides the fact that your stock is worth half of what it was just one month ago?

You know how everybody really wants to try and get in on pre-IPO companies? In a very bizarre way, that's what's about to happen. D.D., you don't lose your ownership in a company by virtue of the stock, no longer trading. You absolutely retain your ownership, but you'd be retaining your ownership in a private company with no real path to gain any liquidity from it. As an individual investor, you know, that's not. a place that I would want to be. But yeah, you're holding a pre-IPO company at that point. Is there a scenario where, because I can imagine at least a few investors, looking at this

stock, beaten down the way it is, and thinking, well, it's cheap. And if it gets in the good graces of the Chinese government, then maybe it's a steal at this price. Yeah, those people are also the kind of people who love, jumping onto the backs of bulls, right? Like, that's... Just for the excitement? For the excitement, right? Like, yeah, like, so I might break a bone or two. I mean, just keep in mind that D.D. had all these warnings from the Chinese government when they held their IPO. They have had a year now where they could have figured out how to buy back the shares to go, have a traditional going private transaction. It happens all the time,

where you actually go in and you buy the company or the company with investors buys the shares from minority shareholders and you close it out that way. That's not what they're doing here. What they're doing is they're like, well, if you vote for it, we're going to shut, we're going to shut the doors. And it's it's unconscionable behavior to me. I mean, I guess it's okay. Like if you want to hold a private company, you probably shouldn't be an individual investor. You should probably be an institutional one where you have the capacity to, you know, to trade with other large shareholders. But as an individual shareholder, I think you are, I think you're risking quite a lot. I think you're risking owning a company that has not behaved very well for a very,

very long time. And a reminder that among other things, setting your expectations accordingly, like in the same way that you look at a Johnson and Johnson and you think, well, if I'm buying shares of this, I've got the bluest of the blue chip stocks. I'm not getting a lot of growth. I'll get a dividend that's going to increase year after year. And if you want to jump in on D.D. Global, just know you might be buying a private company and not getting that money anytime soon. That's right. The brownest of the brown chips, if you will. Bill Mann, always great talking to you. Thanks for being here. Thank you, Chris.

TikTok is available in China, the U.S., as well as 150 other countries. TikTok has over a billion users, and some of them are using the platform to get tips on investing. So how do you separate the good financial advice from the downright horrible? With more, here's Robert Brokamp and Alison Southwick. For the last couple weeks, we were joined by Ron Lieber. He's the bestselling author and a writer for the New York Times. We talked to him about how to talk to your kids about money. And if you weren't inspired to talk to your kids about money and investing, today will hopefully scare you.

into it. A 2021 study by Wells Fargo found that 45% of teens became more interested in investing after the rise of meme stocks like AMC and GameStop. And when they asked teens where they learned about money, over half said their parents, which is great, but they also pointed to other sources. In fact, almost half said school and over a third said social media. So that means if you aren't talking to your kids about money, they're going to learn it on the streets, by which I mean that mouthy and unjustifiably confident friend of your kid, you know the one I'm talking about, and places like TikTok, Reddit, Discord. TikToks with the hashtag like Money Talks, Doc Talk, FinTalk, have billions of views.

And the good news is that the advice isn't all bad. Much of it is solid, preaching long-term investing and the miracle of compounding returns. But joining us today to talk about how to separate the good from the bad advice online is Kirsten Gera. She's a bureau chief here at the Motley Fool. Hey, Kirsten, thanks for joining us. Hey, Allison. Thanks for having me. So we invited you on because you are no stranger to TikTok.

In fact, I believe you help manage the Molly Fool's own TikTok account. I do. I do. It's a blast. So, Kirsten, what's the first kind of bad advice you're going to find on social media? Yeah. So a lot of the advice, I think, falls under a bucket we can call bad math, which is just creators playing very fast and loose with numbers.

whatever way benefits their outrageous claim. And so this often targets retirement accounts, making half-baked claims about the tax benefits that are offered, or this can be inflated tax rates or unreasonably high returns, unreasonably low returns. Again, it's whatever supports their narrative without any of the necessary context to better understand. So, for example, here's a TikTok with a creator discussing the Google stock split with a kernel of truth, but a bit of an exaggeration. What happens is that the price of that stock goes down because of the split, but then it quickly rises back up. So I can expect Google to double here in the next three to six months. As Kristen said, there's a kernel of truth to this. There is historically evidence that a

stock goes up after a stock split. But he's saying that this is, this company, Google, is going to double over the next three to six months, which is very difficult to do for any stock, let a lot of stock that is already worth $1.8 trillion. And we here at the Motley Fool basically believe you can't really predict what's going to happen to a stock in the short term. Anyhow, in fact, that's what's happened here. This original TikTok was published on February 2nd. It's now towards the middle to end of April. And Google actually has not gone up, but it's actually down 15%. Deborah, you have an example. And this is one that I found particularly terrifying.

Yes, let's give it a listen, shall we? Say you want to do some trading, but you don't have a lot of money. So you come and you give me a dollar. And me, the brokerage, I give you $500. Now you're actually able to make some money. Say you give me $1,000. I give you back $500,000. You see where I'm kind of going here?

Okay, so here's what's interesting about this one. What this fellow is suggesting is actually illegal. Because in the United States, the Federal Reserve mandates how much you can borrow to invest. It's called investing on margin. the United States, you can only borrow half of the amount you want to invest. So if you want to invest $10,000, you have to put down $5,000. That's 50% equity. What this guy is suggesting is, you only have to put down a dollar to invest $500. How is this possible? Well, first of all, he's promoting a broker that isn't in the United States. It's in the Caribbean. New York

Magazine did an article on this fellow, and it turns out he's been involved in a few other things, such as promoting a cryptocurrency named Mando as it's Star Wars themed because it's named after the Mandalorian and another fake sort of crypto elongate, I guess, after Elon Musk. So do a little research into the person to find out what else they have promoted in the past. All right. Let's move on and talk about some of the worst offenders. In my opinion, they are also the most entertaining, though. But also, again, also potentially the most dangerous for the young. youngest among us. And those are the people who are hyping or lying about success on social media.

Kirsten, what are these people like? Yeah, you said it, Allison. These people are hyping their success. And unfortunately, most often they're creating an illusion of success that they don't actually have. So these people will talk very confidently. They'll share how much money they make or their net worth. They'll show their accounts openly on screen. They'll film themselves in front of fancy houses dispensing this advice. Unfortunately, it's not that hard to do some of these things. I could film in front of someone's fancy house that is not my own.

I could also pull up an account right now that has $1,000 in it. And with some quick editing in Google Chrome, I could make it look like I have a million dollars. And unfortunately, for me, that wouldn't actually change the amount of money I have, but it could work to fool you into believing that I do have that and that I've been wildly successful. Now, ultimately, all of this is for the purpose. purpose of appearing successful so that this person typically can try to sell you their course or their system and tell you how they've been so successful and you can repeat it yourself

for the low, low price of too much money for what they're selling. So some of my favorites of these are often, let's say guys in their 20s. And so they're showing up in front of their Lambeaus or their, can we call it Rari's? Is that what we call Ferrari when it's just spelled R-A-R-I? $500,000 for my Rolls Royce, $750,000 for my Evintador. Another quarter million for a few other cars each. How do I have this at 22 years old? Let me tell you, it's NFTs.

Let me give you a tour of my new $1.4 million house in Beverly Hills. First off, I've got this giant kitchen with super nice appliances, and then I've got my trading station looking out into the hills. We have been on the most legendary road in the stock market banking over 2 million two days. Check this out. The madness starts here where we're sent some alert to our community for Facebook books. And it went nuclear, going down $80 from our entry and changing a lot of lives. But wait, it gets better.

And the final group of people on the street corners of social media is trying to get your kids hooked on bad financial advice is people who are hyping crypto, meme stocks or penny stocks. Kirsten, tell us about these people. Yeah, these posts and videos are exactly that. They are all hype. There's very little substance in these videos. There's no nuance about the risks. They're typically presented not as what the business might do or improve upon in the future, but how a stock price will move. So it will double in six months, or it will 10x in 2022. And so it's these outrageous claims that are centered on stock price alone.

In fact, there's very often no talking in these videos at all. It's just this pumped-up hype music and a list of stocks that some random person says Will Soar. And he's usually driving a Lambo. I mean, you got to be given your penny stock hot penny stock tips from your Lambo, right? Otherwise, why would you believe it? I mean, did the stock advice even happen if you're not giving it from the, from your wheel of your Lambo? Do the kids still call it that?

All right, well, let's hear a couple examples. Three penny stocks that will go crazy this week. So, what's interesting here is with this person, he was right, but probably because he talked about it. And this is the classic pump and dump. So the three stocks he highlights are small companies with market caps of $100 to $200 million. And you can look at the price of these stocks and the volume. So when you look at these three stocks, the stocks either went up 30 to 100 percent after he posted this video, and the volume on these stocks went up three times to 10 times. The reason it happened is because he posted the video. So what he probably did, I don't want

to accuse him of anything, but it's quite possible. He bought these very thinly traded stocks, posted the video, which pumped up the price, then sold because you want to get out before the suckers, and then the stock comes down. And that's what happens. In fact, in each of these stocks. All three of them are now at a lower price than when he originally posted this video. All right. So, Kirsten, how do you tell the good advice from the bad on TikTok, social media everywhere? Yeah. I mean, look, promises of huge returns can be really tempting on these platforms, and kids on TikTok don't know any better. Adults on TikTok don't know any better. So if you

read flags that you can look out for or teach your kids to look out for is first, and this will sound very simple, but just always ask yourself, who is this person? Influencers will come at you with a lot of confidence, but ask yourself, why should I listen to them? If someone is trying to sell you a course and they have no relevant certifications, their goal is probably to make money off of you, not to educate you. Yeah, that's all good advice. Certainly, you want to click on the links and their bios to see where it takes you. Sometimes it'll take you to a very thorough website. Sometimes they'll take you to their WhatsApp number. So you just have to pay attention to that. Sometimes people will say they have certain things. certifications and they actually don't. So, for example, I'm a certified financial planner,

and you can go to the CFP board's website and look up and see that I actually am a CFP. But sometimes people say they're some sort of a professional financial advisor, an accountant, a lawyer, but they're actually not. You can check up on that too. But also look for people, basically, what are they trying to sell? You'll often find that they are using their platform to delegitimize, in their eyes, a perfectly valid strategy. in order to sell you something. So one example is you'll see lots of videos of people who are denigrating the classic old 401k. And they're saying you shouldn't do a 401k.

You should do something else. What's that something else? Often it's something very expensive that generates a large commission like life insurance. Another thing you can look for is to arm yourself or your kids with some basic knowledge so that you can help identify these wild claims when you come across them. So, for example, know that the stock market returns 7 to 10% per year. Know that risk is proportional to reward. Then when you see something that promises to double your money in six months, you'll

know that that is beyond reason and incredibly risky. I think it's important to ask yourself, what could go wrong? What's the risks involved with it? Has this person laid out the risks? How likely is it? And can I handle the consequences? We've talked in the show about leverage, for example. Leverage is great because it magnifies gains, but it also magnifies losses.

So if you're going to use any sort of leverage, you have to understand what's at stake and can you live with the downside possibilities? Definitely. And similar to that, I would suggest that everyone always look for substance in these videos. Here at the Motley Fool, we always say that we invest in the businesses themselves, not the tickers, not the piece of paper that accompanies that. So, a video that goes into some business analysis might actually be worth doing further research into, but a video that simply makes a very positive claim that they want you to follow,

something like X stock is about to double, or X crypto will go to the moon in 2022. This is most likely a pump and dump. Bro, what's your parting advice? I would just like to say that, you know, we had the Motley Fool got our start from, you know, a couple 20-somethings posting on the AOL discussion boards back in 1990. which I guess you could kind of say was the TikTok of its day. And our message was, and still is really, you don't need high-priced, you know, fanzily-dressed Wall Street types to manage your money. You know, the little-time education, you do a lot of it yourself without all the conflicts of interest and maybe have some fun along the way.

So I don't want to denigrate anyone who's sharing financial education education on TikTok, YouTube, Twitter, anywhere. I love it. It kind of gets back to the DNA of The Motley Fool. And we still believe there's a lot of value in technology that brings people together to to learn from each other. That said, you've got to be careful, right? Because of all the warnings we talked about here. So go ahead on all these social media platforms, learn as much as you can. Just make sure that you do a good bit of trust, but verify. Yeah, that's exactly right. And something you alluded to earlier, bro, I would just circle back on,

which is that these videos are, by design, most of them, 60 seconds or less, which is an incredibly tight window to share financial advice and to share all of the risks and the nuance like we've talked about is needed. So just know that going into it. Use these platforms as a spark of inspiration for investing, for saving money, all of these things. But yes, go and do further research. That's all for today. But coming up tomorrow, we'll talk about investing in fitness. And I'm not referring to your gym membership. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may inform all recommendations for or against, so don't buy ourselves stocks based solely on what you hear. I'm Chris Hill. Thanks for listening.

We'll see you tomorrow.