Analyse your stocks in seconds
Expert insights you can understand
Improve the odds of your stock picks
Generate investing ideas fast
Track & improve your Portfolio
Time your trades better with charts
Explore all the featuresStockopedia contains every insight, tool and resource you need to sort the super stocks from the falling stars.
Over the past 20 years, stock market news, data and discussion has proliferated on the internet. Individual investors now have greater access to information than ever before, and one of the pioneers in this field is the online platform, ADVFN.
ADVFN’s services range from company news, alerts and basic investment tools through to premium newsletters and Level 2 trading data. But by far its most popular feature - and a huge source of visitor traffic to its websites - are its investing bulletin boards.
For many, these online discussion forums are a daily must-read. Thousands of investors gravitate to hundreds of different company boards to pass the time and exchange ideas.
It’s easy to see how these online communities might be a source of knowledge - but can the average investor really outperform the market with a site like ADVFN? Indeed, can some of the tools on the site actually hamper your investment returns?
ADVFN started life in December 1999, at the height of the dot-com boom. Like many tech-led companies at the time, it floated on the stock market very quickly (in just three months it was listed on the Alternative Investment Market). At the time it claimed to have 1.5 million page views a day.
Today, the business has website services in the UK, the US, Brazil, Italy and beyond. It claims to have 34 million+ unique global users per year, 10+ million visitors to the site a month generating 1 billion page impressions a year.
With so much traffic, it would be easy for the average user to get lost in overwhelming amounts of discussion, so ADVFN makes life simple by grouping some of them together into “top lists”. One of those lists is one that collates the “Most Followed Shares” across the site.
Every registered user of ADVFN has a “Follow Feed” and they can “follow” stocks by clicking the +Follow button next to any company name.
By “following” a stock, the Follow Feed will aggregate all the latest mentions of the company across the site, both in news and discussion posts.
As the name suggests, “Most Followed” is a daily-updated list of stocks that are followed by the largest numbers of people across the site. It’s a naturally interesting list because it offers an insight into the kinds of shares that are popular in the ADVFN community. These are the shares that the majority of users who use their Follow Feed want to keep abreast of.
Importantly, Most Followed is potentially more useful than other top lists - such as the “Most Discussed” - because it’s less likely to be skewed by stocks that happen to be in the news or are particularly popular with frequent contributors to the discussion boards. However, there are potential pitfalls…
While many investors are aware of the behavioural mistakes that can be made in the stock market, there is a risk that the Most Followed list could actually encourage a common investing error. Here’s why...
In psychology, System 1 and System 2 are well known terms for understanding the way that humans think. System 1 is the impulsive, easy route to decision making, where we often rely on shortcuts to process information. System 2 is the slower, more considered route that takes effort but usually leads to better choices. It’s a concept that was documented by celebrated psychologists Daniel Kahneman and Amos Tversky.
The problem with the Most Followed list is that it plays into the hands of System 1 thinking.
Rather than independent thought, research and personal decision making, a top list like this encourages what’s known as “herding”. Herding happens in all aspects of life, but it’s prevalent in investing. An easy list of well followed stocks is an obvious shortcut, but it could mean buying into the poorly-judged decisions of a group.
The risk is that these stocks are not being followed because they have strong fundamentals, attractive valuations or positive price trends… rather it’s because many investors are simply following the herd.
To put this to the test, we set out to explore how ADVFN’s Most Followed stocks perform as a portfolio.
Taking a sample of the Most Followed list twice a year, every year from 2016 to 2020, we tracked the portfolio performance (excluding costs and dividends).
The result was that the portfolio - although reasonably diversified between sectors and market-cap ranges - simply tracked the market. There was barely any outperformance at all versus the FTSE All Share - with both the index and the portfolio up by around 4.5% between May 2016 and November 2020. For many investors, this would be an unsatisfactory outcome.
Despite delivering the same return as the broader index, the weighting of sectors in the portfolio was notably different to the index in places. In particular, the Most Followed list was overweight with Consumer Cyclicals versus the index. But it was considerably underweight in defensive sectors like Healthcare, Consumer Discretionary and Utilities - which were all areas that performed well in 2020.
By contrast to our simulated ADVFN portfolio, it was possible to outperform the FTSE All Share over the past five years by aligning with a set of well-researched ‘factors’ that have historically driven returns. Portfolios of shares with some of the strongest overall exposure to a combination of cheap valuation, high quality and positive trends have produced market-beating returns on average - as this chart shows.
By comparison, portfolios with low exposure to the same factors - making them expensive, poor quality and deteriorating - saw considerably negative returns over the same period.
This suggests that avoiding the investment herd and sticking to proven statistical and technical factors can be a superior option.
While ADVFN’s Most Followed top list may first appear to be a potentially interesting insight into stocks that might be worth closer investigation, it should be treated with caution.
Taking ideas and investment cues from ADVFN’s community of users may seem like a helpful shortcut, but the investment herd has proved to be a very average predictor of outperformance and a sub-optimal way of stock picking.
There are a huge number of ways to invest, depending on your objectives, temperament and strengths: we’ve documented some of the approaches of famous UK investors in our book, Inside The Minds of Great Investors, which you can download for free.
The Stock market performance data was compiled by tracking the performance of 35 companies listed on the London Stock Exchange over the period from May 2016 to November 2020.
The portfolio was rebalanced as and when the newly most followed list was published (typically over a 6 month period).
Any companies from the most followed list that have since been delisted were not included in the portfolio and an equal weighting was allocated to each equity position. Dividends and transaction costs were excluded from the performance calculations to give a better idea of the capital appreciation of the portfolio vs the FTSE All Share benchmark.
About Ben Hobson
Stockopedia writer, editor, researcher and interviewer!
Disclaimer - This is not financial advice. Our content is intended to be used and must be used for information and education purposes only. Please read our disclaimer and terms and conditions to understand our obligations.
*Past performance is no indicator of future performance. Performance returns are based on hypothetical scenarios and do not represent an actual investment.
This site cannot substitute for professional investment advice or independent factual verification. To use Stockopedia, you must accept our Terms of Use, Privacy and Disclaimer & FSG. All services are provided by Stockopedia Ltd, United Kingdom (company number 06367267). For Australian users: Stockopedia Ltd, ABN 39 757 874 670 is a Corporate Authorised Representative of Daylight Financial Group Pty Ltd ABN 77 633 984 773, AFSL 521404.