By: Esmat Hanano, IAC 2019 Spring Intern
Welcome back to the final installment in our series on the Fyre Festival. Today, we focus on the lessons that retail investors can take from the Fyre Festival. The Fyre Festival scandal offers three important lessons for retail investors in the influencer-driven age of promotion and investment. First, retail investors need to ignore the “Keeping up with the Joneses” effect that flows from social media. Although constant access to other people’s lives on social media has been beneficial in some regards, it has also created an innate sense of competition between people that forces them to try and keep up with how others are living their lives. This is a particularly dangerous feeling to have when dealing with investment offers—an investment that is suitable for one person may be unsuitable for someone else.
Second, retail investors have to do their own research. McFarland was able to sell his vision of the Fyre Festival because people took him at his word and did not investigate the logistics of the event until it was too late. The best way to avoid being roped in by a charismatic salesman or broker-dealer is to be cynical—research all of his claims to the best of your ability to determine if he is trustworthy.
Lastly, retail investors must develop an understanding of the new forms of promotion and solicitation that are being used. In 2017, the estimated market value of the Instagram influencer market was $1.07 billion. That number is only expected to grow as the pace of technological advancements continues to increase exponentially. Retail investors should check the posts of famous Instagrammers and social media celebrities for the hashtag #ad. This is required by the Federal Trade Commission to help users determine when a post is an advertisement and why the influencer might be supporting the product. Additionally, retail investors should be wary of using social media as a way to receive information about potential investment opportunities that seem too complex for explanation over a social media platform.
Taken together, these lessons can help keep retail investors from falling into the same traps that the attendees and investors in Fyre Festival fell into. By being cautions and cynical, retail investors can sift fact from fiction and make smart investment decisions that will benefit them in the long-term.