Do You Really Know What You’re Investing In?

November 04, 2016

My kids, some coworkers, and it seems like the whole world around me are big fans of Twitter. In fact, some of the podcasts I listen to mention Twitter as the hosts’ #1 source for breaking news. I guess I haven’t ever seen that platform as one that works for me and when Twitter became a publicly traded company, I chose not to buy the stock because I couldn’t figure out their revenue model.

I also thought “speaking” in 140 characters or less was a way to degrade the way people communicate. I already despise “text speak.” Character limitations have given us degradations of the English language like UR, BRB, LOL and the worst of all possible things…emojis! (And while I’m at it, get off of my lawn!)

I am a big fan of words and grammar and punctuation. There’s a huge difference between “Let’s eat, Grandma” and “Let’s eat Grandma.” Punctuation can save lives!

With this mindset, I have been watching the world of technology companies and see that Yahoo was for sale recently and the price paid was far less than it would have been when Yahoo was one of the kings of the technology hill. Now Twitter is for sale and potential bidders keep opting out of the deal. There are fewer suitors as time moves forward and the potential sale price keeps dropping. The moral of the story for me is that just because something is cool and trendy and “everyone loves it”, it doesn’t always translate into a wonderful business model.

I’m a huge fan of Sirius satellite radio and have it on constantly. Just because I’m a loyal customer, doesn’t mean I want to be an investor. Again, cool stuff is awesome as a consumer, not always wonderful as an investor.

As you think about investing your hard-earned dollars, be very aware of the “cool effect” (not a real term, I’m making it up for this blog). Sometimes in situations like Apple and Google, a “cool effect” translates well into a cool investment that produces great returns for an extended window of time. But those are far more the exception than the rule.

One of the rules I use when evaluating if I want to invest in a particular company (which I rarely do anymore) is that I absolutely MUST understand what the company does and how they earn their money. I’m still mystified by Facebook! Do people really buy that many ads or pay for that many games? No one I know has ever spent a dime on that platform, so either I know the wrong people or I just can’t grasp what they’re doing to generate revenue and profits.

Do you know what you’re investing in? Most people I meet don’t really know where to begin to answer that question. Even at the top level of stocks vs. bonds vs. cash, most people I meet are unaware of their asset allocation. Many have no idea what it “should be” for their stage of life and goals.

If you’re like me and don’t understand how Twitter makes money and why anyone would want to buy it, let that thought make you dig into what you really do own and invest in. I’ve heard the phrase “no one will care about your money more than you” used a lot recently. Take a few minutes over the next several days and figure out what your current asset allocation is and what you’d like it to be and then take a look at your current holdings to see if there are investments that might not fit with your goals.

This investment risk profile can help you determine where you might want to be from a top level asset allocation standpoint. To dig a layer deeper, here is a fairly technical article and a practical one as well to help you evaluate your investment holdings. Remember, you aren’t investing to own the “cool stuff.” You invest for one reason and one reason only: to make your money grow over time.

How Creditworthy Is Your Facebook Page?

March 11, 2014

Wherever you fall on the social media spectrum — between Twitter power user and Facebook holdout — do you know how your social media activity (or lack thereof) is affecting your creditworthiness? If not, it’s time to find out.

What is a social media-based credit score?

In the interest of finding new and improved ways of predicting creditworthiness, the social media-based credit score was born. This is an alternative credit scoring model that includes in its calculations information from your social media profiles, activity, and connections. At its best, a social media-based credit score can help borrowers who would not qualify for loans via traditional scoring models. At its worst, a credit score based on social media can hurt someone whose activity and/or connections are questionable.

Why is social media considered a valid indicator of creditworthiness?

They say the best indicator of future behavior is past behavior. Thus, the value of the traditional credit score is based on how you have handled lines of credit in the past. However, it is absolutely possible and common for people to change their ways. That’s where a social media-based credit score comes into play, basing creditworthiness on character as revealed via updates, job history, and with whom you choose to associate.

Does FICO use social media to tabulate its credit score?

Currently, FICO does not incorporate social media data into its scoring model. In turn, it does not influence your score through the three major credit reporting bureaus that use the FICO model — Equifax, TransUnion, and Experian. However, FICO has not ruled out the inclusion of social media data in the future. Earlier this year, FICO Senior Consumer-Credit Specialist Anthony Sprauve told The Wall Street Journal, “There could come a time where certain social media could be predictive and we’re looking at that, but it isn’t yet.”

Which credit scores incorporate my social media activity?

It was about three years ago when the social media-based credit score first came onto the scene. Since then, a number of small lenders have adopted this alternative scoring model, like Kabbage, Kreditech, and Lenndo.

Which social media platforms are used in a social media-based credit score?

Since there is no universal social media-based credit score, every lender that utilizes social media data does so according to its own unique formula. That said, the most common social media platforms currently accessed include Facebook, Twitter, and LinkedIn.

How are my social media profiles accessed for calculating a social media-based credit score?

Your authorization is required for lenders to access your social media profiles.

What elements of my profile or activity go into a social media-based credit score?

Again, each lender that utilizes this alternative scoring model uses its own unique formula. However, the information that tends to carry the greatest weight includes education, job history, number of connections, quality of connections, and location and seniority of connections. So while you certainly want to be mindful of what you post to your social media platforms, you should be equally concerned that your friends on Facebook, connections on LinkedIn, and the people you’re following on Twitter are doing the same.

What safeguards are in place to ensure the accuracy of a social media-based credit score?

Unlike your FICO score, a social media-based credit score requires no validation. Here’s the difference. The three major credit reporting bureaus each generate their own unique FICO-based credit score. This score is based on the listings within your credit reports, which vary from bureau to bureau depending on which agency your creditors use to report your activity. These listings on your reports are required by law to be verified, not because they are used to tabulate a credit score, but because they are used to tabulate a credit score that the bureaus share with third-parties.

This is not the case with social media-based credit scores as they are tabulated and used by the lenders alone (i.e., not passed on to a third-party). Currently, there is no regulatory body overseeing the social media-based credit scoring model. However, the practice has been noted by the Consumer Financial Protection Bureau as well as the FTC, which is planning a series of seminars on alternative scoring models this spring.

Can current or potential employers access social media-based credit scores?

Since each social media-based credit score is unique to the lender that creates it, there is no universal number for an existing or future employer to access. However, some employers do use traditional credit scores to make hiring decisions, particularly in the finance industry. As for social media, employers are increasingly keeping a watchful eye on social media sites, not only of their current employees, but also prospective ones. For this reason, be ever-mindful of what you post for public view.

Can we expect a future in which social media-based credit scores are the norm?

This is too soon to call, but it’s certainly well within the realm of possibility. So whether you agree with the social media-based credit score or not, it is best to start building an online profile that won’t come back to haunt you. After all, it’s one thing to suffer the short-term, embarrassing consequences of an ill-advised update now and then, but quite another for social media activity and/or connections to have long-term negative effects on your finances.

This entry is a guest post by Meredith Simonds, the personal finance blogger for Credit Info Center. Check them out on Facebook. You can follow her on Twitter @creditinfocentr and on Google+