Overconfident investors who believe they can beat markets through active trading and discussion tend to achieve inferior returns, research shows.ANGELA WEISS/AFP/Getty Images
Sam Sivarajan is a keynote speaker, independent wealth management consultant and author of three books on investing and decision-making. His forthcoming book will explore how to thrive in a world of uncertainty.
In the movie Fight Club, the first rule is simple: Don’t talk about Fight Club. According to interesting new research, the first rule of successful investing might be: Don’t talk about investing.
Every major market event follows a predictable script: Within hours of any significant economic announcement, financial social media explodes with hot takes, predictions and urgent calls to action. Threads on X dissect policy changes, Reddit forums buzz with investment strategies, and StockTwits lights up with bullish and bearish proclamations. Yet, a comprehensive new study suggests that the most successful investors might be those who resist the urge to join this digital conversation.
Researchers recently completed a comprehensive analysis of social media’s relationship to market performance. Their March, 2025, study examined millions of posts across StockTwits, X, and Seeking Alpha over nearly a decade, revealing findings that challenge conventional wisdom about information and markets.
The study distinguished between two critical concepts that most investors conflate: sentiment and attention. Think of sentiment as the mood – whether social media posts are optimistic (“Buy the dip!”) or pessimistic (“Market crash coming!”). Attention, by contrast, measures volume – how much people are talking about investing at all, regardless of whether they’re bullish or bearish.
Here’s where it gets interesting: these two forces predict opposite market outcomes.
High sentiment – when social media buzzes with optimistic posts, bullish predictions and “to the moon” commentary – is typically followed by strong market gains. But this euphoria proves short-lived. The study found that periods of elevated bullish sentiment are systematically followed by declines over the subsequent 20 trading days.
High attention operates differently. When the volume of social media conversation about investing spikes – when everyone suddenly starts posting about stocks, crypto or market movements – it typically signals continuing market stress. Unlike sentiment, which predicts reversals, high attention both accompanies and predicts continued market weakness.
The researchers also discovered a telling asymmetry: daily market drops (2 per cent or more) trigger both declining sentiment and increasing attention, while gains generate little response. This suggests that market stress creates a perfect storm – pessimistic mood combined with intense discussion volume – that predicts continued poor performance. Further, fear and uncertainty seem to drive social media engagement more than success and optimism.
The trading implications are stark. The researchers developed a dynamic strategy that adjusts portfolio allocations based on these social media signals. Over their nine-year sample period, this approach generated annual excess returns of 4.6 percentage points – performance that significantly outpaces that of most professional fund managers and exceeds the historical market average.
Research, built on decades of behavioural finance studies, shows how psychological biases undermine investment performance. It consistently shows that overconfident investors who believe they can beat markets through active trading and discussion tend to achieve inferior returns.
Studies of social media platforms like Reddit’s WallStreetBets confirm this pattern, showing that stocks that are heavily discussed and purchased by retail investors often decline in subsequent weeks.
The phenomenon extends beyond individual stocks to marketwide behaviour. Consider how this played out during recent market stress. The study, which included the period of the COVID-19 crash, when attention spiked while sentiment plummeted, showed that those who increased their social media consumption and participation during this period were precisely the investors most likely to make poor decisions – selling at market lows or chasing speculative plays discussed in online forums.
This doesn’t mean investors should ignore all information or avoid learning about markets. Rather, it suggests that the constant stream of social media commentary – the urgent hot takes, the confident predictions, the viral investment advice – often represents noise rather than an accurate signal of where markets are heading. The most valuable information comes from systematic analysis and patient observation, not from joining the daily conversation.
Three key takeaways for investors to keep in mind include:
- First, recognize the reversal pattern. When social media sentiment about markets runs extremely high, it often signals short-term market tops. Consider this a warning to reassess, rather than a reason to increase risk;
- Second, distinguish attention from information. High levels of social media attention around investing topics typically coincide with market stress and continued volatility. More discussion doesn’t equal better investment opportunities; and
- Third, build anti-social media habits. Consider limiting exposure to investment-focused social media during periods of market stress. The most successful long-term investors often consume less daily market commentary and spend more time on fundamental analysis and strategic planning.
The next time your social media feeds fill with urgent investment advice and market predictions, remember that the wisest response might be to close the app and do nothing. In the age of information overload, the power of staying quiet may be the most undervalued investment skill of all.
As legendary investor John Bogle wisely advised, “Don’t do something, just stand there!”