Here’s a fun experiment. You don’t need many materials, just a little bit of work. Here are the steps: Create a huge following on Twitter. Put your money into a little-known stock with low trading value. Write several messages on Twitter to almost 4 million followers about how good the investment is. Watch the valuation of the company, one that is best known for late-night infomercials selling the George Foreman Grill, soar by $50 million.
Rapper 50 Cent didn’t sell to lock in the incredible rise his shares experienced on paper, but if he had, it could have been a great endorsement deal. He spent the weekend writing about a new headphone product that he, along with the master late-night marketers, introduced at the Consumer Electronics Show. He probably wouldn’t have been able to sell his investment in an illiquid investment like the penny stock representing the company, HNHI. Eventually, 50 mentioned the investment might not be right for everyone. Eventually — and certainly not immediately — he disclosed his ownership in the company.
He is obviously using his popularity to benefit him financially in the stock market, and there’s little difference between this and the penny stock pump-and-dump scams. You could argue that all that a popular musician does is trade popularity for merchandise sales — but with music, you generally know the product before you buy. With an investment like this, only a small portion of the investors who took action based on Twitter messages bothered to do any independent research into the company. If they had, they might have found financial problems — or perhaps they did discover that the company experienced losses and is borrowing money from its CEO, but decided to ignore the negatives in light of the fact of the celebrity endorsement and involvement.
The entertainment industry is a huge influence on the consuming public. Styles worn by celebrities go viral the next day. Red Bull thrived because they paid Britney Spears or Paris Hilton to be photographed with the drink. Let’s try to leave entertainers to entertaining; forget about getting investment advice from them.