Celebrities affect the music we listen to, the cars that make our wish lists, and whether we’ll stick our lips into bottles to mimic Kylie Jenner. For better or worse, there’s no denying that fame garners influence.
And though bruised lips might be an example of an ill-advised trend, there are plenty of ways celebrities affect much more important aspects of our lives, including the performance of the stock market. About 55% of Americans have invested in the stock market to some degree, according to Gallup, and making solid gains on those investments is always the goal. In some cases, involvement from celebrities can cause those investments to leap – if you were lucky enough to buy up stock before they made their moves.
Having celebrity backing in a stock isn’t a magic formula to increasing the value of your own portfolio, but it’s clear the rich and famous occasionally have the Midas touch on Wall Street. Here’s a few examples where celebrities can cause stock prices to jump.
1. They buy a significant share of the company
In October 2015, Oprah Winfrey announced she was buying a 10% stake in Weight Watchers, managed by investing $43 million in new stock shares of the points-counting company.
“Weight Watchers has given me the tools to begin to make the lasting shift that I and so many of us who are struggling with weight have longed for,” said Winfrey, a member, in a statement. “I believe in the program so much I decided to invest in the company and partner in its evolution.” In addition to becoming a member of the company’s board of directors, The New York Times reports that Winfrey will also lend her face and name to the company for marketing campaigns.
The sale is obviously a big win for the company, which faces steep competition from free weight management tools like Fitbit and other devices. The investment was perhaps even bigger news for previous investors, who saw the value of their stock increase 92% within a day or so. The stock was worth $25.76 per share at the end of November 2015, a 279% leap from its low point of $6.79 in the days before Winfrey announced the investment.
2. Celebrity endorsements work on Wall Street, too
One of the main goals of celebrity endorsements is to increase product sales, but the best endorsement agreements also boost stock prices. Under Armour benefited from this over the summer, when golfer Jordan Spieth won the Masters tournament and U.S. Open within a matter of months – evoking well-earned allusions to a Tiger Woodsian legend in the making.
Stock prices rose in the spring and summer, increasing from a low of $64.22 in early 2015 to more than $104 in September. That can’t all be attributed to Spieth (the company also signed on NBA star Stephen Curry and is expanding their international sales), but stocks did rise in April and June, when the golfer claimed his green jacket and trophies.
Spieth isn’t the first celebrity to affect the market value of a company. According to a white paper from the Harvard Business School and Barclays, stocks jump with major accomplishments of athletes who endorse products and brands. And though sales eventually start to decline in relation to one specific celebrity, stock returns remain relatively constant. “When it comes to the impact of endorsers’ athletic achievements, such performances significantly and positively impact the endorsed firms’ stock prices,” the authors conclude.
3. Successful investors breed mimics
Everyone likes having someone to aspire to, and mimicking the success of Warren Buffett is every novice investor’s dream. Buffett has worked diligently over his lifetime to invest wisely, both with personal funds and that of his company, Berkshire Hathaway. That work has paid off in big ways, as Buffett’s net worth is estimated by Forbes to be $64.1 billion.
Since Buffett is known to have made much of his fortune from smart investments, he and figures like him hold much sway over which stocks are a good bet. There are several portfolio trackers that show which stocks Berkshire Hathaway has in its portfolio, presumably so other investors can buy those stocks, too. Other investors, like Peter Lynch and George Soros, are also influential in which stocks people choose to buy, Chron states. “Such is the respect given to these individuals’ skill and past success that they sometimes can affect the movement of markets by simply suggesting that developments might occur,” the website states.
4. Investors buy based on reputation
We aren’t likely to see famous stock analysts on the cover us US Weekly anytime soon, but analysts who appear in the media tend to have more sway over the stock markets than their less-famous counterparts, regardless of their track records. According to researchers’ work from Northwestern University, the University of Southern California, and Georgia State University, the more an analyst’s name appears in the media, the more investors tend to follow their advice, even if the outcomes aren’t any more beneficial.
However, the researchers also found there’s no compelling evidence to suggest that these analysts provide more accurate earnings forecasts. People might buy stock because the recognizable face from CNBC’s Mad Money told them to, but it doesn’t mean they’ve received a golden ticket. “Don’t assume that just because an analyst has gotten more press that his or her forecast revisions are more accurate. Investors should also look at the historical performance of the analyst before deciding on whom to rely,” said Beverly Walther, one of the researchers.